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COUNTRY PROFILE

ArgentinaOur quarterly Country Report on Argentina analyses currenttrends. This annual Country Profile provides backgroundpolitical and economic information.

1998-99The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 0269-4468

Comparative economic indicators, 1997

0 100 200 300 400

Brazil

Mexico

Argentina

Colombia

Venezuela

Chile

Peru

Ecuador

Uruguay

Paraguay

Bolivia

Gross domestic product$ bn

Sources: EIU estimates; national sources.

802.3802.3802.3802.3802.3802.3802.3802.3

0 2,000 4,000 6,000 8,000 10,000

Argentina

Uruguay

Chile

Brazil

Mexico

Venezuela

Peru

Colombia

Paraguay

Ecuador

Bolivia

Gross domestic product per head$


0 2 4 6 8 10

Argentina

Peru

Chile

Mexico

Venezuela

Uruguay

Bolivia

Ecuador

Paraguay

Colombia

Brazil

Gross domestic product% change, year on year


0 10 20 30 40 50 60

Venezuela

Ecuador

Mexico

Uruguay

Colombia

Peru

Paraguay

Brazil

Chile

Bolivia

Argentina

Consumer prices% change, year on year


EIU Country Profile 1998-99 © The Economist Intelligence Unit Limited 1998

December 1st 1998 Contents

3 Basic data

4 Political background4 Historical background6 Constitution and institutions7 Political forces8 International relations and defence

9 The economy9 Economic structure

10 Economic policy13 Economic performance14 Regional trends

15 Resources15 Population16 Education17 Health17 Natural resources and the environment

18 Economic infrastructure18 Transport and communications19 Energy provision20 Financial services23 Other services

23 Production23 Manufacturing25 Mining and semi-processing26 Agriculture and forestry27 Construction

28 The external sector28 Merchandise trade31 Invisibles and the current account32 Capital flows and foreign debt33 Foreign reserves and the exchange rate

35 Appendices35 Sources of information37 Reference tables37 Government finances (non-financial national public sector)38 Money supply38 Interest rates38 Gross domestic product39 Gross domestic product by expenditure39 Gross domestic product by sector

1

© The Economist Intelligence Unit Limited 1998 EIU Country Profile 1998-99

40 National income, savings and investment40 Productivity and labour costs41 Prices and earnings41 Population trends41 Labour force statistics42 Key transport statistics42 National energy statistics43 Banking statistics43 Stockmarket indicators43 Tourism (number of visitors)44 Manufacturing production44 Output of main industrial products44 Miscellaneous manufacturing statistics45 Manufacturing sector’s sales to the domestic market45 Minerals and quarrying output45 Agricultural production46 Livestock and fishing46 Key construction statistics46 Exports47 Imports47 Key exports and imports48 Trade volume indices48 Main trading partners49 Balance of payments, IMF estimates50 Balance of payments, national estimates51 External debt51 Foreign reserves52 Exchange rates

2


Argentina

Basic data

Land area 2,737,000 sq km

Population 36m (1998 official estimate based on 1991 census)

Main towns Population in ’000, 1991

Greater Buenos Aires area 10,911 Buenos Aires (federal capital) 2,961Córdoba 1,179Rosario 1,078Greater Mendoza area 721 Mendoza 122La Plata 543Mar del Plata 534Tucumán 473Santa Fe 442Salta 374

Climate Varies from subtropical in the north to subarctic in the south

Weather in Buenos Aires(altitude 27 metres)

Hottest month, January, 17-29°C (average daily minimum and maximum);coldest month, June, 5-14°C; driest month, July, 56 mm average rainfall;wettest month, March, 109 mm average rainfall

Language Spanish

Measures Metric system. Among other measures in use are:

fanega=3.77 bushelsquintal=100 kg

Currency The peso has been fixed at the rate Ps1:$1 since April 1991

Time 3 hours behind GMT

Public holidays January 1st; Good Friday; May 1st and 25th; June 10th and 20th; July 9th(Independence Day); August 17th; October 12th; December 8th and 25th

Argentina: Basic data 3


Political background

The president is head of state and government. The present incumbent isCarlos Menem of the Partido Justicialista (PJ). There is a two-chamber parlia-ment. Presidential and Congressional elections will be held in October 1999.

Historical background

Rapid growth at the turnof the century

From one of the less populous Spanish colonies in America, Argentina devel-oped to become one of the fastest growing economies in the world at the turnof the 19th century. Liberal governments made Argentina the tenth largesttrading country in the world and the sixth in terms of income per head. Rapidgrowth diversified the economy and the society. Secret and mandatory votingpaved the way for the victory of the Unión Cívica Radical (UCR, also known asthe Radical party) in 1916. The UCR, founded in 1890 to represent the rapidlygrowing middle classes, did not change the country’s economic profile.

The 1929 crash and thePeronist era

Rapid economic growth and political pluralism were brought to an end by theGreat Depression. In 1930 the first in a series of military interventions oustedthe Radicals. After 1932, and for more than a decade, Conservatives stayed inoffice through electoral fraud.

The second world war reawakened demand for Argentinian exports. There wasanother military coup in 1943. In 1946 Colonel Juan Domingo Perón, formerlabour minister in the military government, was elected president. The constit-ution was reformed in 1949 to allow a second six-year term, which he won in1952. While in office Perón nationalised most foreign-owned public servicesand increased the role of the state in the economy.

Recurrent militaryinterventions

Perón remained in power until 1955, when he was ousted by another militarycoup. The next three decades witnessed recurrent military intervention (in1962, 1966 and 1976.) In the 1950s and 1960s Perón was exiled and barredfrom taking part in elections, which weakened the legitimacy of civiliangovernments. Amid political instability, the economy failed to recover its pre-1929 dynamism.

In 1973 Perón was finally allowed to stand again for election, winning thepresidency for the third time. He died less than a year after taking office and wassucceeded by his second wife, María Estela Martínez de Perón. The new Peronistgovernment returned to populist economic policies. Mrs Perón’s administrationwas quickly discredited. Violent confrontation between guerrillas, right-wingparamilitary groups and the military made matters worse. In 1976 the armedforces seized power to implement a programme of economic liberalisation and aruthless anti-terrorist policy, known as the dirty war.

Democracy restoredin 1983

In 1982 the armed forces invaded the Falkland Islands (Islas Malvinas), whichhad been occupied by the British since the 1830s, in an attempt to recapturepublic support. Discredited by the defeat, the military agreed to hand over

4 Argentina: Historical background


power. Elections in October 1983 were unexpectedly won by Raúl Alfonsín ofthe UCR.

His administration consolidated political democracy and confronted humanrights abuses committed during military rule. Issues such as trade liberalisation,market deregulation and privatisation were also introduced into public debate.But overall Mr Alfonsín’s economic policies proved ineffectual. The Radicalswere badly beaten by a rejuvenated Partido Justicialista (PJ, Peronist party) inthe 1987 congressional election. The economy went from bad to worse and in1989 Argentina sank into hyperinflation.

Mr Menem launches anambitious structuralreform programme—

For the May 1989 presidential election the leader of the PJ, Carlos Menem,campaigned on the promise of higher wages and a “productive revolution”.The Peronists recorded a sweeping victory. Mr Alfonsín handed over power fivemonths early, in July 1989, as hyperinflation ravaged the economy. In a dra-matic U-turn Mr Menem opted for austerity and market-oriented economicpolicies.

Mr Menem forged an alliance with business and the traditionally anti-Peronistestablishment. The Convertibility Plan launched in April 1991 brought infla-tion under control and initiated an unprecedented period of price stability andeconomic growth, which became the government’s principal asset. Mr Menemwas able to push successfully for an agreement with the Radicals to reform theconstitution to allow presidential re-election.

Main political figures

Carlos Saúl Menem: The president of Argentina and headof the Peronist party. He cannot stand for re-election in 1999,but will become a senator. As architect of Argentina’seconomic transformation he will remain influential and mayrun again in 2003.

Eduardo Duhalde: Governor of Buenos Aires province, thelargest electoral district and a Peronist stronghold. Defeatedin the October 1997 congressional ballots, he remains themost likely Peronist presidential candidate for 1999, despite adifficult relationship with Mr Menem.

Ramón Ortega: Secretary for social development and aformer pop singer and governor of Tucumán province,Mr Ortega is the president’s favourite to lead the Peronistticket in 1999.

Domingo Cavallo: Former economy minister and architectof the Convertibility Plan. Ousted by Mr Menem in 1996, hecreated a new party (Acción por la República) and won acongressional seat in 1997. He is expected to run for thepresidency in 1999.

Raúl Alfonsín: Former president and leader of the UniónCívica Radical (UCR). Played a decisive role in creating theAlianza por el Trabajo, la Justicia y la Educación. He is theemblematic figure of Argentina’s transition towardsdemocracy.

Fernando de la Rúa: UCR mayor of the city of Buenos Airesand the Alianza’s 1999 presidential candidate.

Carlos Alvarez: A deputy and prominent figure in thecentre-left coalition, Frente del País Solidario (Frepaso), andthe Alianza. Formerly a Peronist, Mr Alvarez will have aleading role if the opposition takes office in 1999.

Graciela Fernández Meijide: A representative for BuenosAires province since October 1997. She unexpectedlydefeated the Peronists in the 1997 congressional election.Having lost the Alianza presidential nomination to Fernandode la Rúa, Mrs Fernández Meijide is expected to stand forgovernor of Buenos Aires province for the Alianza in 1999.

Argentina: Historical background 5


—and is re-elected for asecond term in 1995

The Peronists swept to another victory in May 1995 as worries about theimpact of the Mexican financial crisis persuaded the electorate to vote for theparty with a proven record of economic stability. Mr Menem was re-elected inthe first round with 49.9% of the vote, followed by the centre-left coalition,Frente del País Solidario (Frepaso), with 30%. The UCR’s performance was theworst in the party’s history.

An early struggle forMr Menem’s succession

Mr Menem’s second term has been marred by several problems, including highunemployment and a debilitating struggle over who is to run as the PJ pres-idential candidate in 1999. Eduardo Duhalde, the governor of Buenos Airesprovince, is the front-runner, but the president supports Ramón Ortega. In the1997 congressional election the Peronists were beaten by a recently createdcoalition between the UCR and Frepaso, dubbed the Alianza por el Trabajo, laJusticia y la Educación. The victory of the Alianza raised the possibility that theopposition may take office in 1999.

Constitution and institutions

A strong presidentialsystem

Argentina is a federal republic with a strong presidential tradition. The pres-ident appoints a cabinet chief, a secretary-general of the presidency and eightministers. The cabinet chief is formally in charge of the general administrationof the country and can be removed by a majority vote of both houses ofCongress.

The new constitution established a four-year presidential term, with a provi-sion for one consecutive re-election. The president is elected in a two-rounddirect election (no second round is needed if the winner receives more than

Important recent events

November 1993: Carlos Menem and Raúl Alfonsín announce an agreement toreform the 1853-60 constitution (the Pacto de Olivos). A new constitution isadopted in July 1994 and Mr Menem is able to run for re-election.

May 1995: Mr Menem is re-elected for a second term with 50% of the vote. ThePartido Justicialista wins a majority in both houses of Congress. His second term isinaugurated in July 1995.

July 1996: Mr Menem fires the economy minister, Domingo Cavallo, thearchitect of the Convertibility Plan, but his departure goes unnoticed by themarkets. His replacement by the president of the Banco Central de la RepúblicaArgentina (the Central Bank), Roque Fernández, ensures economic policy stability.

October 1997: The Peronists are beaten by the newly-created Alianza in thecongressional election.

July 1998: Mr Menem formally declines to fight for a third chance to bere-elected in 1999.

6 Argentina: Constitution and institutions


45% of the vote, or at least 40% with a 10-percentage-point lead over thesecond-placed candidate).

Traditionally, the Ministry of the Economy has exercised great power withinthe cabinet. This has not changed with the creation of the post of cabinet chiefin 1994. The head of the National Audit Bureau is designated by the oppos-ition, and reports to Congress.

Congress Congress is bicameral, with a 257-member Chamber of Deputies and a72-member Senate. Deputies are directly elected for four-year periods; halfstand for re-election every two years. Senators, who represent the 23 provincialstates and the autonomous federal district, are elected for six-year terms. ThePeronists lost their majority in the lower house in October 1997.

A weak judiciary The judiciary has long-standing organisational problems. More importantly, it issuspected of bending to the executive. Although a judicial reform is under way(including use of oral proceedings to speed up trials), progress has been slow.

The new constitution established the appointment of judges by a council ofjurists and created a jury responsible for removing judges. Both are close tobeing implemented. The need for an effective and independent judiciary hasbeen highlighted by highly publicised corruption scandals involving govern-ment officials and foreign and domestic corporations.

Political forces

A bipartisan system— During the post-war period the two main political parties have been the PJ andthe UCR. The traditional stronghold of the Peronists has been the low- andmiddle-income sectors. But Mr Menem departed from tradition and undertookan ambitious programme of privatisation, trade liberalisation and deregula-tion. This U-turn, supported by business and financial elites, has strained theparty and its constituencies, such as the trade unions.

Election results(% share of total votes)

1987a 1989b 1991a 1993a 1994c 1995b 1997ad

Partido Justicialista & allies 42.9 46.6 40.4 43.1 38.8 49.9 36.3

Alianza por el Trabajo, la Justicia y la Educación n/a n/a n/a n/a n/a n/a 36.3

Unión Cívica Radical & allies 37.3 33.1 29.1 30.2 20.5 17.0 7.0

Centrist & provincial parties 13.0 12.0 16.2 18.0 11.7 0.5 7.0

Left & centre-left parties (incl Frepaso) 6.9 6.8 10.5 3.1 16.7 30.7 5.7

Acción por la República n/a n/a n/a n/a n/a n/a 3.9

Others 0.0 1.8 3.8 5.7 12.2 1.8 3.3

a Congressional election. b Presidential and congressional elections. c Election of representatives to the constituent assembly. d Votes for theAlianza exclude votes for the UCR and the Frepaso in districts where these parties presented separate tickets; votes for the left and centre-leftparties include those for the Frepaso (where it presented separate tickets) and other parties; if all votes for the UCR and the Frepaso are countedas votes for the Alianza the total is 45.6%.

Source: Dirección Nacional Electoral.

Argentina: Political forces 7


The UCR, a centre party appealing to middle-class voters, is the oldest politicalorganisation. Since Peronism emerged, the Radicals have been relegated to thelargest opposition party, a role unexpectedly interrupted by the 1983 elections.The traumatic experience of the last two years of the Alfonsín administrationand the Pacto de Olivos of November 1993 have divided the party, whichobtained a meagre 17% of the vote in the 1995 presidential election.

—is re-created by a newalliance

The most important development of the 1990s is the emergence of the Frepaso,a coalition of disenchanted Peronists, Socialists, Christian Democrats and inde-pendents. Although it lacks a countrywide political structure, the Frepaso camesecond in the 1995 presidential election. Some of its leading figures (such asGraciela Fernández Meijide and Carlos Alvarez) have gained widespread publicsupport. A last-minute alliance with the UCR in the October 1997 congres-sional election, forming the Alianza por el Trabajo, la Justicia y la Educación,proved successful. The Alianza has held together despite personality clashesand some policy issues. In November 1998 Fernando de la Rúa won the Alianzapresidential nomination, easily defeating Mrs Fernández Meijide of Frepaso ina nationwide primary.

The smaller parties The rest of the political spectrum has traditionally been of little significancecountrywide. There are powerful local parties in certain provinces (such asCorrientes, Neuquén, Salta and San Juan), leaders of which have often sup-ported the government. More recently, as part of the centre-right electorate hasbecome uneasy about allegations of corruption against the government, newpolitical organisations have emerged, led by former officials of Mr Menem’sadministration, such as Acción por la República, led by the former economyminister, Domingo Cavallo.

International relations and defence

Argentina follows theUS lead—

The Alfonsín and Menem governments tried to repair the damage done toArgentina’s international reputation by the invasion of the Falkland Islands(Islas Malvinas). During the Alfonsín administration, relations with developedcountries improved but difficult issues (such as the re-establishment of diplo-matic relations with the UK) remained unresolved. Mr Menem’s approach wasswifter. Argentina abandoned the Non-Aligned Movement and supported UNinterventions in Iraq, Bosnia and Haiti, even sending troops. The governmentalso dismantled the Cóndor missile programme and ratified the Tlatelolcotreaty barring nuclear weapons from Latin America. Although the Falklandsissue is far from settled, Mr Menem restored diplomatic relations with the UKand visited the UK in a sign of reconciliation in October 1998.

—and moves closer to itsneighbours

Democratic governments also repaired Argentina’s traditionally poor relationswith its main neighbours. In 1986 Mr Alfonsín launched a bilateral economicco-operation programme with Brazil, which later evolved into Mercosur(Mercado Común del Sur). Closer relations with Brazil include a foreign policyconsultation mechanism, mutual inspection of nuclear facilities and militaryco-operation programmes.

8 Argentina: International relations and defence


Mr Menem also settled nearly all pending territorial disputes with Chilethrough a Tratado de Paz y Amistad (Treaty of Peace and Friendship). The onlyremaining dispute concerns the continental glaciers area, where an agreementhas been reached but has yet to receive congressional approval. Mr Menem iskeen to solve the issue before 1999, ending all territorial disputes with Chilebefore he leaves office.

A new role for the armedforces

Despite uprisings by junior officers (known as the carapintadas) in 1990, themilitary has been subordinated to civilian power since the transition to demo-cracy. Anti-democratic elements were purged and Mr Menem attempted to putthe country’s past behind it by granting the military a pardon for human rightsoffences committed in the dirty war. The military budget has been cut asimproved bilateral relations have ended the perceived threat from Brazil andChile. The challenge to find a new role for the armed forces has resulted intheir participation in UN peacekeeping operations.

The economy

Economic structure

Main economic indicators, 1997

GDP ($ bn) 323.5

GDP per head ($) 9,070

Consumer price inflation (%; year-end) 0.3

Current-account balance ($ m) –9,429

Exports of goods fob ($ m) 26,273

Imports of goods fob ($ m) 28,560

Foreign trade coefficienta (% of GDPb) 9.9

Total gross external debt ($ bn) 110.2

a Exports + imports of goods and real services. b Current dollars.

Source: Ministerio de Economía.

Mercosur

The Mercado Comun del Sur (Mercosur) is a customs union formed in 1991 byArgentina, Brazil, Paraguay and Uruguay. Trade in goods is subject to zero tariffrates, except for a small number of items scheduled to reach zero tariff in 1999 forArgentina and Brazil, and one year later for Paraguay and Uruguay. Mercosur hasadopted a common external tariff ranging from 0% to 20%, still underimplementation. The customs union has signed free-trade agreements (FTAs) withChile and Bolivia and is currently negotiating an FTA with the Andean Community.Mercosur is taking part in the negotiations for a Free-Trade Area of the Americas(FTAA) and may engage in FTA negotiations with the European Union.

Argentina: Economic structure 9


Argentina is a country rich in natural resources. Agriculture and agro-industrieshave been traditionally important. Privatisation and deregulation in the early1990s have turned Argentina into an exporter of oil and natural gas. Followinga contraction in the late 1970s and stagnation in the 1980s, manufacturingoutput recovered in the 1990s. But the structure of industry has changed:foreign firms account for a higher share of total output, the import coefficienthas increased and inter-industry linkages are weaker. Services account for alarge share of GDP. Privatisation has raised efficiency in communications,electricity distribution, finance and transportation.

Investment rates rise After reaching their lowest level in 1990 (13.4% of GDP), investment ratesrecovered in the 1990s, aided by a favourable external environment. In 1997the investment rate reached 24.1% of GDP (constant prices). By contrast, thegross domestic savings rate has remained depressed (18.1% of GDP in 1997).The savings-investment gap makes Argentina dependent on external savings, aweakness exposed by the Mexican crisis of December 1994, when the invest-ment rate as a share of GDP fell by 3 percentage points.

Economic activity is unevenly distributed. Less than one-fifth of the continentalarea—the federal district and Buenos Aires, Córdoba and Santa Fe provinces—accounts for 64% of the population, 80% of industrial production and 92% oftotal agricultural output.

Economic policy

Hyperinflation gives way— The 1980s were characterised by the foreign debt crisis, chaotic public financesand high inflation. The economy touched bottom with the 1989-90 hyperin-flation, which provided the pretext for far-reaching structural reforms and aradical stabilisation plan. The Peronist government, which took office in 1989,promoted privatisation, deregulation and trade and financial liberalisation. InApril 1991 it implemented a stabilisation plan which included the adoption ofa currency board (the Convertibility Plan).

Important recent economic policy events

1991: The Convertibility Law fixes the Ps:$ exchange rate atpar and introduces a currency board.

1992: Congress approves a new Central Bank charter whichestablishes the independence of monetary authorities.

1993: The government agrees a Brady-style debt-reductionplan with commercial banks. Liabilities with commercialbanks are exchanged for collateralised bonds.

1994: The pension system is reformed to allow for theparticipation of private pension funds.

1995: The Central Bank charter is reformed to allow moreflexibility in managing liquidity crises.

1996: The authorities seek to strengthen the financial systemthrough a safety net arranged with private banks, higherminimum liquidity requirements and the introduction ofcapital requirements weighted for market risk.

1997: The government develops a domestic public debtmarket for peso-denominated instruments through regularauctions for short-term Treasury bills and two-to-five yearspeso-denominated bonds.

1998: The government signs a three-year extended fundfacility with the IMF. The agreement makes a total of $2.8bnavailable in case the government is unable to tapinternational capital markets.

10 Argentina: Economic policy


—to stabilisation andstructural reform

The currency board stopped the Central Bank from financing budget deficits byprinting money, forcing the public sector to bring its deficit into line with avail-able finance. The economic recovery, falling inflation rates, a simplified taxstructure and measures to fight tax evasion all helped to improve public finances,which also benefited from a temporary revenue boost from privatisations.

By 1997 the government had privatised most public utilities—telecommun-ications, airlines, power generation and distribution, gas transportation anddistribution, water and sewerage systems, passenger and cargo railways, theairports network, and the post office—as well as nearly all productive facilities(including oil and gas extraction, coal mining, petrochemicals plants, and steelmills). The Banco Hipotecario Nacional (national mortgage bank) and the nu-clear power stations will be transferred to the private sector before the end of1999. The privatisation of public banks, electricity generation and distribution,and water and sewerage systems by provincial governments has speeded upsince 1995, but progress has been uneven. Structural reforms eliminated priceand interest rate controls, deregulated most economic activities, further liberal-ised the foreign investment regime and removed most export taxes and quan-titative restrictions on imports. The tax system was simplified around avalue-added tax (VAT), which in 1997 contributed (in net terms) 52% of totaltax revenue (excluding contributions to the social security system). The taxsystem needs to be reformed to reduce the burden of high payroll taxes. In1998 Congress watered down a proposal put forward by the government.

Fiscal policy isconstrained by theConvertibility Law

The public finances worsened from 1994 owing to increased public-sectorspending, the transitional cost of the introduction of a private retirementsystem and the drop in consumption spending brought about by the Mexicancrisis. The deficit of the non-financial public sector peaked at $5.3bn (1.8% ofGDP) in 1996, when the government recorded a primary deficit for the firsttime since launching the Convertibility Plan. In 1997 tax revenues wereboosted by the economic recovery and new emergency tax measures, but therise was largely offset by higher government spending. In 1998 Argentina maynarrowly fail to meet the $3.5bn deficit target agreed with the IMF. Theauthorities expect to reduce the deficit to $1bn by 2000 (equivalent to 0.25% ofGDP), but this may be over-optimistic. Fiscal policy will remain constrained bythe government’s ability to borrow at a reasonable cost, which will depend onliquidity in international financial markets.

Public-sector accounts(Ps bn)

1997 1998a

Current revenue 54.6 57.2

Current expenditure 55.9 61.6

Primary surplus (excl privatisations) 1.2 1.4

Privatisation receipts 0.3 1.0

Primary surplus 1.5 2.4

Interest payments 5.7 6.8

Balance –4.3 –4.4

a EIU estimates.

Sources: Secretaría de Hacienda; Carta Económica.

Argentina: Economic policy 11


(Historical data on public finances are given in Reference table 1; data onmonetary indicators are in Reference table 2; data on interest rates are inReference table 3.)

A passive monetary policy Under a currency board system the monetary authorities relinquish control ofmonetary policy, which is subordinate to changes in international reserves.The authorities demonstrated their commitment to the fixed nominal ex-change rate during the Mexican crisis of 1994-95 and again during the turbu-lence in East Asian and Russian financial markets in 1997-98. The high degreeof dollarisation of Argentina’s financial system has raised the cost of abandon-ing the fixed exchange rate, which is regarded as a factor enhancing foreigninvestors’ confidence.

The run against Argentinian banks following the Mexican devaluation ofDecember 1994 revealed the failings of the regulatory framework then in place.The authorities responded by introducing new, stricter liquidity reserve require-ments, establishing a private deposit insurance fund and arranging $6.1bn incontingency credit lines with foreign banks for disbursement in case of emer-gency. The authorities also established compulsory ratings by independentagencies to make information about banks’ health more transparent and readilyavailable to depositors. The result has been a concentration of banking activitiesthrough take-overs and mergers. The banking system’s new-found strength isconfirmed by the fact that the turmoil in international financial markets in1998 went almost unnoticed by the domestic banking system.

With monetary policy tied to the currency board and fiscal policy constrainedby the Convertibility Plan, the authorities depend on improving the efficiencyof tax and public-spending policies and on other microeconomic reforms, suchas labour reform and a more effective regulatory framework, to improveeconomic performance. Neither the tax nor the labour reforms approved byCongress in 1998 have fully satisfied the authorities, and further changes maybe in the pipeline.

Tax and labour reform

The reforms of the 1990s have resulted in de facto labour market flexibilisation.But more extensive reform is needed to increase flexibility, expand opportunitiesfor job creation and provide incentives to shift from informal to formalemployment. Main targets for reform are the system of collective bargaining,automatic renewal of collective contracts as they expire, the layoff compensationregime and statutes governing work conditions in certain activities.

The tax system also needs reform. There are problems of design (exemptions andopportunities for tax avoidance) and implementation (poor tax enforcement andhigh tax evasion). The tax regime relies heavily on indirect taxation, which makesit sensitive to the business cycle and regressive. Payroll taxes are high, creatingincentives for informal employment. Any substantive tax reform will require a newtax revenue-sharing agreement with the provinces. In 1998 Congress passedlimited tax changes, such as a partial extension of the value-added tax (VAT) topreviously exempted activities and the implementation of a “single tax” for smallbusinesses and the self-employed.

12 Argentina: Economic policy


Economic performance

Following the economic instability and stagnation of the 1980s, Argentina’sgrowth record has been good during the 1990s. As inflation fell following theimplementation of the Convertibility Plan, the economy grew at rapid rates,aided by a favourable international financial environment. This consumption-led expansion was halted in 1995 by massive capital outflows triggered by theMexican devaluation of December 1994. The ensuing recession was sharp anddeep, taking the unemployment rate to 18.4%.

The economy recoversfrom the “tequila” effect

By the end of 1995 Argentina began a strong recovery, aided by improvingconditions in international financial markets, higher prices for commodityexports and restored confidence. During 1996-98 fixed investment was thefastest growing component of aggregate demand. In contrast to the 1991-94boom, consumption spending increased at a rate below that of real GDP. Theresult was a rise in the national savings rate, which started during the 1995recession and reached its highest level in the decade in 1997.

Growth in gross domestic product(% real change)

Average1990-94 1995 1996 1997

Gross domestic product 6.3 –4.0 4.8 8.6

Private consumption 9.3 –5.9 6.9 8.8

Government consumption –1.6 –5.0 1.0 3.6

Gross fixed investment 14.8 –16.0 8.8 26.5

Exports of goods & real services 6.4 22.3 6.7 12.1

Imports of goods & real services 32.8 –11.6 18.2 27.6

Domestic demand 8.8 –7.9 6.6 11.8Source: Secretaría de Programación Económica.

The expansionary cycle which followed the 1995 recession has confirmed thecountry’s dependence on external savings. Growth in the import bill widenedthe current-account deficit, which reached an estimated $14.1bn in 1998 (equi-valent to 4% of GDP). Since 1997 plummeting commodity prices have slowedexport growth.

During the expansionary phase of the early 1990s manufacturing lagged be-hind total output growth, a feature reversed after the 1995 recession. By mid-1997 industrial production had reached record highs, boosted by automobileoutput. Mining and quarrying, construction and some service activities (forexample, commerce, finance, and transport and communications) also ex-panded rapidly. (Historical data on GDP are given in Reference tables 4-6.)

Low inflation After decades of high inflation the Convertibility Plan restored price stability.Consumer price increases moderated during the 1995 recession, stabilisingthereafter, despite rapid economic growth. Virtual price stability in 1996-98reflects new dynamics of price formation and labour market slack. The relativeprice of tradeables improved between 1994 and 1997, but worsened again in1998. (Data on various prices measures are given in Reference table 9.)

Argentina: Economic performance 13


Inflation(% change)

Annual average1997 1992-96

Consumer prices 0.3 8.3

Wholesale prices 0.1 3.9Source: Instituto Nacional de Estadística y Censos (INEC).

Unemployment peaks andincome inequality widens

The percentage of families living below the poverty line fell from 38.3% inOctober 1989 (during hyperinflation) to 11.9% in May 1994, but rose again to19% in October 1997. Real wages have fallen every year except 1994 (whenthey rose by a modest 0.6%) and remain below the average for the 1980s. Thesetrends have worsened the distribution of income: the share in total income ofthe lowest 40% of the population fell from 14.8% in 1990 to 13.6% in 1997.

The most disappointing development has been the rise in the unemploymentrate, from 6.9% in 1991 to 13.2% in 1998, after peaking at 18.4% in 1995 (Mayreadings). In some urban areas the unemployment rate nears 20%. If the 13.3%underemployment rate is taken into account, nearly a quarter of the activepopulation currently faces employment problems. Except for 1997, when therate of new job creation increased by 7.7% over the year-earlier period (Octoberon October), new jobs have not been growing sufficiently fast to reduce un-employment significantly. The economic slowdown caused by the financialturmoil in East Asia and Russia will worsen this trend. (Historical data are givenin Reference tables 8 and 11.)

The government has taken measures aimed at reducing payroll taxes and in-creasing the flexibility of labour markets. But their impact is hard to assess.Moreover, some initiatives (such as more flexible labour contracts) were aban-doned following evidence of fraud and other unintended consequences (suchas a high rate of job rotation). Whether greater labour market flexibility willcontribute to new job creation remains uncertain. Although new reforms mayreduce labour costs, high payroll taxes are the main problem.

Regional trends

Regional differencespersist

Argentina has wide regional differences. The bulk of the population and eco-nomic activity is concentrated in the Pampas region, which accounts for abouta fifth of the country’s total area. Differences in income per head are equallyremarkable. Moreover, the effects of economic reform and growth during the1990s have been unevenly distributed across regions. In many provinces, thephasing out of industrial promotion schemes, privatisation and public-sectorreform have resulted in jobs being lost. Some regions have benefited from re-newed dynamism in traditional activities (such as the wine industry in thewestern provinces) or from greenfield investments in new sectors such as min-ing or forestry. Provinces relying on traditional crops, such as sugar cane andtobacco, have suffered, but a slow process of diversification has been under way.Improved access to the large Brazilian market has stimulated regional crops,such as rice and beans, and regionally concentrated industries such as dairy.

14 Argentina: Regional trends


Fiscal rationalisation inthe provinces

Although some provinces have made progress, most still require rationalisationof their public sectors. Local government spending is inefficient and tax collec-tion low, financing only a small share of total spending. Since local govern-ments get most of their income from tax revenue sharing with the centralgovernment, incentives to improve local tax collection are limited. A new taxrevenue sharing agreement between the central and provincial governmentshas been given high priority. Privatisation has advanced swiftly in public utili-ties and finance.

Decentralisation in the provision of public services (such as healthcare andeducation), under way for over a decade, has resulted in growing disparity inthe quality of services provided.

Provincial public sector(Ps bn)

1995 1996 1997

Total expenditure 30.0 30.3 32.3 Current expenditure 25.8 25.9 27.9 of which: personnel 15.2 14.8 15.5 Capital expenditure 4.2 4.3 4.4

Total revenue 26.4 28.5 31.1 Current revenue 24.9 25.8 28.2 Provincial origin 11.0 11.6 12.4 Federal origin 13.9 14.2 15.8 Capital revenue 0.3 0.3 0.4 Contributions 1.2 1.4 1.5

Balance –3.6 –1.8 –1.2Sources: Ministerio de Economía and Ministerio del Interior.

Resources

Population

Official projections made on the basis of the 1991 census estimate Argentina’spopulation in 1998 at 36m. By 2010 total population is projected to reach 41m.Life expectancy is higher than the Latin American average, which explains therelatively low share of population below 15 years. (Population totals are givenin Reference table 10; labour force totals in Reference table 11.)

Comparative population indicators(%)

Latin AmericaArgentina Brazil Chile & Caribbean

Annual average growth rate (1995-2015) 1.1 1.1 1.2 1.4

Fertility rate (children per woman, 1996) 2.7 2.4 2.3 2.1

Population below 15 years of age (1995) 28.9 31.7 29.9 n/a

Population between 15 & 64 years (1997) 61.1 64.6 60.0 61.9

Urban population (1995) 88 78 84 74Sources: UN Fund for Population Activities, The State of the World Population 1997; Instituto Nacional de Estadística y Censos (INDEC).

Argentina: Population 15


Regional distribution Population density is low at 12.8 inhabitants per sq km in 1997 and 89% of thetotal was concentrated in urban centres in 1997. The Buenos Aires metropoli-tan area accounts for nearly one-third of the total population. When its hinter-land (the pampas) is included, the proportion rises to two-thirds. An estimated85% of the population is of European descent. There are no significant race orethnic problems.

Income distribution The distribution of income has worsened in the 1990s. Between 1990 and 1997the share in total income of the highest 10% of the population rose from 50.7%to 51.3%. Poverty indicators, which had peaked during the hyperinflation,worsened again during the 1995 recession, but have since stabilised. Data forthe Buenos Aires metropolitan area (which makes up one-third of the popul-ation) place 19% of households below the poverty line in 1997.

Education

The early development of a system of state schools has encouraged high liter-acy rates (96.2% in 1995) and high enrolment in primary and secondary educ-ation. The main challenge is to reverse the deterioration of the publiceducation system caused by the fiscal and administrative difficulties of thefederal and provincial governments. Decentralisation has made educationalservices more heterogeneous.

Educational reform The 1993 federal education law set in motion educational reform. Provincialgovernments are implementing the latter, but progress has been slow owing todisparate technical abilities and lack of financial resources. Thin budgets in-hibit the infrastructural investment required to extend the primary cycle tonine years, while teachers’ participation has been unenthusiastic as a result oflow wages. Total government spending in education was the equivalent of 4%of GDP in 1996.

Higher education The Higher Education Law passed in 1995 enabled public universities to estab-lish their own admission and financial regimes. Traditionally, higher educ-ation has been free, with unrestricted admission, which has conspired againstquality. The apparent inadequacy of the public higher education system hasstimulated the proliferation of private institutions. Yet many lack the humancapital and physical infrastructure required to provide adequate educationalservices. Graduate studies have developed rapidly because of the deterioratingquality of undergraduate training.

Comparative education levels(% of age group enrolled in education unless otherwise indicated)

Argentina Brazil Chile US

Literacy rate (% of total population, 1995) 96.2 83.3 95.2 99.0

Total schooling gross rate (1995) 79 72 73 96Source: World Bank, World Development Indicators.

Research and development (R&D) is carried out mainly at universities andpublic research institutions. Argentina spends only 0.31% of its GDP on R&D. Areform of the science and technology system is under way, but it is uncertain

16 Argentina: Education


whether the new structure will reverse the long-term deterioration in pub-lic R&D.

Health

Healthcare under reform Healthcare is provided by the public and private sectors and the obras sociales(semi-public health trust funds). All three have undergone a transformation inrecent years. Fiscal stringency, lower wages, the extension of informal labourcontracts and poor management have reduced the contribution of the publicsector and the health trust funds to healthcare provision.

The share of total healthcare spending in the federal budget was nearly 7.5% in1997, but its efficiency is very low. The public sector provides healthcarethrough the public hospital network to about 30% of the population, mainlyto low-income earners. The public hospital network has been decentralised andresponsibilities transferred to provincial and local governments.

Comparative health indicators

Argentina Brazil Chile US

Life expectancy (years, 1996) 73 67 75 77

Infant mortality rate (per 1,000, 1996) 22 36 12 7

Doctors per ’000 inhabitants (1994) 2.7 1.4 1.1 2.5

Hospital beds per ’000 inhabitants (1994) 4.6 3.0 3.2 4.2Source: World Bank, World Development Indictors.

Competition amonghealth trust funds

Obras sociales care for about 65% of the population. They are pay-as-you-gosystems based on compulsory payroll contributions made both by the em-ployer and the employee, administered by trade unions or professional organ-isations and co-ordinated by the Administración Nacional del Seguro de Salud,the national health administration. The obras sociales are undergoing restruc-turing through increased competition among them. The private sector wants toparticipate in the market but trade unions are opposed to this because it wouldthreaten an important source of revenue.

Natural resources and the environment

Argentina is located in the southern extreme of the American continent. Itstotal surface area is 2.7m sq km. The country is 3,700 km long, and the climatevaries from subtropical to cold. Most of the country is in the temperate climateregion. One-third is in humid zones, while the rest of the country is in arid andsemi-arid zones.

Land-use patterns Some 73% of the territory is devoted to extensive or semi-extensive cattlebreeding, 4% is predominantly used for arable crops, 18% is of mixed use and5% is devoted to other uses. Although the yield per unit of land in grainproduction is similar to that of Australia or Canada, the use of fertilisers (about5 kg/ha) is much lower. Similarly, the use of pesticides is still only one-thirdthat of Australia’s and one-tenth of that of some European countries.

Argentina: Health 17


Fishing and mineralresources

A large coastal region south of the Río de la Plata provides abundant fishingresources. There has been over-fishing of some species, such as squid.

Vast mineral resources are known to exist, but only a fifth of the country hasbeen surveyed. Natural gas reserves are large and Argentina is set to become amajor natural gas supplier to neighbouring countries.

Environmental legislationand problems

Argentina has well-developed, but still poorly enforced, environmental legis-lation, particularly in respect of the exploitation of natural resources (oil andnatural gas, minerals, and forestry). Legislation on the disposal of dangerouswastes, the use of substances damaging the ozone layer, and ship pollutioncontrol is recent. The Secretariat of Natural Resources and Environment is thegovernment agency in charge of environmental protection.

Economic infrastructure

Transport and communications

Privatisation, deregulation and decentralisation have improved transport andcommunications services after many years of decline. Railways, urban passen-ger transportation, most of the ports and a large share of highway constructionand maintenance were transferred to the private sector. Deregulation eased orremoved administrative constraints on most types of transportation services.(Transport statistics are given in Reference table 12.)

Improving roadinfrastructure

The average age of the car and road cargo fleet has fallen in the 1990s. Main-tenance and improvement of main national roads (approximately 10,000 km)have been transferred to the private sector through a toll system. Road condi-tions have improved, but major roads are congested and need upgrading. Amodern highways network now links Buenos Aires with its suburban metro-politan area.

Railway, air and maritimeservices upgraded

The rail network is the largest in Latin America. In 1993 the cargo system, andthe urban, suburban and profitable inter-city passenger services, were priva-tised. The improved quality of services has raised the number of (urban) pas-sengers and cargo transported by rail.

Competition increased and air transportation fares fell following privatisationand deregulation. In 1998 the authorities transferred the airports network to aprivate operator for a period of 30 years.

Since over 90% of total foreign trade is carried by river and maritime transport-ation, port infrastructure is critical to the economy. Decentralisation andprivatisation have reduced costs sharply, particularly in Argentina’s largest port(Buenos Aires). The Paraná-Rio de la Plata waterway is being upgraded throughsignalling and dredging, enabling the navigation of larger vessels and thusreducing transport costs.

18 Argentina: Transport and communications


Telecommunicationsthrive

A decade ago telecommunications were outdated and suffered from years ofunder-investment. Privatisation in 1990 divided the country into two regionsand granted the provision of basic telephone services on a “exclusive” basis totwo private consortia. The materialisation of investment commitments led to aremarkable improvement in the quality of services. Mobile telecommun-ications also expanded rapidly: between 1996 and 1998 the number of userstrebled to reach a total of 2.3m.

Telephone service indicators1990 1997

No. of lines (’000) 3,471 7,265

No. of lines in service (’000) 3,087 6,824

Lines in service per 100 inhabitants 12 19

No. of digital lines (’000) 460 7,147

Network digitalisation (%) 13.0 98.4

No. of cellular telephones (’000) 25a 2,009

a 1991.

Source: INDEC, Comisión Nacional de Comunicaciones.

Energy provision

Privatisation and deregulation have also transformed the energy sector. Elec-tricity generation, transportation and distribution are now largely privatised, asis the oil and natural gas sector. (National energy statistics are given in Refer-ence table 13.)

Energy demand has increased steadily in recent years, but supply has kept pacedue to the start-up and enlargement of thermal plants and new hydroelectricstations. Electricity generation is a competitive market, but transport and dis-tribution are regulated. Distribution services have improved significantly afterprivatisation. The projected expansion in generation will turn Argentina intoan exporter of electricity to Brazil and Chile. The share of hydroelectric plantsin total generation is scheduled to increase over the next decade, to reach 47%by 2010, compared with 35% in 1996.

Telecoms: the end of “exclusivity”

Domestic and foreign groups have taken strategic positions in telecoms inanticipation of the end of the “exclusivity” period for basic telephone services anddomestic and international long-distance calls scheduled to take place in 1999.They have entered the mobile phone market and related activities (such as cableTV and satellite communications) which may be used as a base for the provisionof basic telephone services in the future. Increased competition intelecommunications is expected to reduce charges and widen the variety ofservices provided.

Mobile telephone services will gain new impetus from two concessions to operatea new personal communication services (PCS) system in the Buenos Airesmetropolitan area, to be granted before the end of 1999.

Argentina: Energy provision 19


The natural gas and petroleum sectors have also been privatised and deregu-lated. Two private companies are engaged in natural gas transportation, whileeight firms distribute it among consumers in urban centres. The laying ofnatural gas pipelines linking production zones with consumer markets in Chileand Brazil is creating a regional market for natural gas.

Energy balance, 1997(m tonnes oil equivalent)

Elec- Oil Gas Coal tricity Total

Primary supplyProduction 43.0 28.5 0.2 9.5a 84.2Imports 2.5 1.5 0.9 0.5a 5.4Exports –21.0 –0.5 –0.1 n/a –21.6Total 24.5 29.5 1.0 10.0a 68.0

3.3b 61.3

Processing & transformationInput to refining –25.0 – – – –25.0Input to transformation –1.0 –9.0 –0.7 –10.0a –20.9Refining/transformation output 25.0 – – 6.6b 31.6Energy industry fuel/loss –2.5 –3.5 0.1 –1.4b –7.5

Final consumptionTransport fuels 14.0 1.0 – n/ab 15.0Industrial fuels 0.5 7.5 0.2 2.1b 12.7Residential etc 4.0 8.0 – 3.1b 15.5Non-energy uses 2.5 0.5 – 0.0b 3.0Total 21.0 17.0 0.2 5.2b 46.2

a Input basis. b Output basis.

Source: Energy Data Associates.

Financial services

Concentration in banking In the 1990s the new macroeconomic and regulatory environment broughtsweeping changes to Argentina’s banking industry. Convertibility and pricestability created the conditions for an increase in monetisation and financialintermediation from the record lows of the early 1990s.

The loss of deposits in 1995 triggered a process of concentration, which wasreinforced by more stringent regulations aimed at increasing the banking sys-tem’s resilience to external shocks. The result was a smaller number of bankinginstitutions and a higher concentration of deposits in the larger ones. Foreigninvestment in the banking sector has raised the share of foreign banks inArgentina’s total loans and deposits to a high level compared with other largeLatin American economies. The banking system has also been transformed byprivatisation, particularly of provincial banks since 1995.

Macroeconomic stability, rapid economic growth and the housing market havecontributed to the expansion of retail banking activities during the 1990s. Thegradual shift towards peso-denominated deposits and loans has reversed attimes of uncertainty. In 1998 the share of dollar-denominated deposits wasover 54%. (Banking statistics are given in Reference table 14.)

20 Argentina: Financial services


Deposits and lending by banks(Ps m, $ m)

Dec 1996 May 1998 % change

Total banksDeposits 52,758 74,308 40.8 Dollar-denominated 28,194 38,753 37.4 Peso-denominated 24,564 35,555 44.7Loans 58,048 71,813 23.7 Dollar-denominated 36,567 45,836 25.3 Peso-denominated 21,481 25,997 21.0

Ten largest banksDeposits 31,465 49,656 57.8 Share of total deposits (%) 60 67 11.7Loans 33,016 44,731 35.5 Share of total loans (%) 57 62 8.8Source: Banco Central de la República Argentina.

Capital markets graduallydevelop

A tradition of high inflation and macroeconomic instability has hindered thedevelopment of domestic capital markets. But they have experienced rapidgrowth since the introduction of the Convertibility Plan in 1991 and theremoval of all controls on international capital flows. Stockmarket capital-isation increased from 2.4% of GDP in 1990 to 17% in 1997, still low byinternational standards. Most trading is concentrated in a handful of com-panies, which makes for high volatility. (Stockmarket indicators are given inReference table 15.)

The private bond market is equally underdeveloped. However, the stock ofprivate bonds traded through the electronic open market has increased nearlysevenfold between 1991 and 1997. Access is largely restricted to banks andother large firms operating in the services sector (such as energy, constructionand telecommunications).

The domestic public debt market was badly affected by compulsory reschedul-ing and the hyperinflationary shocks of 1989 and 1990. In the mid-1990s theauthorities implemented a programme to restructure and develop the domestic

Banking regulation

Argentina is considered to have one of the best systems of banking regulationand supervision in Latin America. A liquid, robust and highly capitalised bankingsystem is deemed a prerequisite for financial deepening, given the constraintswhich the Convertibility Law places on the Central Bank’s ability to act as a lenderof last resort. The growing presence of foreign banks has enhanced the system’sresilience to negative external shocks.

When the minimum liquidity requirements and the contingency safety netarranged in 1996 are taken into consideration, Argentina’s banking system hasliquid reserves covering around 30% of total deposits.

The Central Bank is implementing a programme to rate the risk of bankinginstitutions, with the aim of increasing transparency and providing moreinformation to depositors.

Argentina: Financial services 21


public debt market and reduce reliance on external borrowing. The newscheme includes the pre-announcement of a quarterly calendar of peso anddollar-denominated debt auctions and the designation of market-makers.Despite its success, the bulk of the public-sector borrowing requirement is stillsatisfied through borrowing in international capital markets.

New agents Since the mid-1990s new agents have entered the capital markets. Privatepension funds were created in 1994 as part of the reform of the retirementsystem. In less than five years more than 6m people (about 73% of the contrib-utors to the retirement system) joined the private pension funds, accumulatingresources totalling nearly $9bn.

Investment funds have recorded equally spectacular growth since 1996. Byearly 1998 investment funds held assets totalling nearly $6bn, a tenfold in-crease over 1995. Growth was fuelled by small and medium-sized investorswho have diversified their portfolios away from bank deposits and towardsmore liquid and profitable financial assets. The emergence of new institutionalinvestors has created incentives to develop new products and markets, such asa futures and options market.

Insurance restructures In the 1990s the insurance industry witnessed the liquidation of the state-owned re-insurer, the deregulation of rates and policies, the elimination ofrestrictions on activities of foreign-owned insurance firms, and tighter sol-vency requirements. These changes produced a shake out in the industry,which over the period has undergone a far-reaching process of concentrationand internationalisation.

A more stable macroeconomic environment stimulated steady growth of themarket, with increased demand for policies (particularly life and retirementinsurance). In 1996 the authorities instituted a compulsory regime of labourrisks insurance which led to the establishment of a number of specialised firms(aseguradoras de riesgos del trabajo, ART).

Other services

Other services, such as retail trade and tourism, have experienced stronggrowth and modernisation in recent years.

Capital markets’ regulation

The basis for a rapid growth of domestic capital markets was laid in the early1990s by a new regulatory framework enforced by the securities’ exchangecommission (Comisión Nacional de Valores). Its aim was to promote competitionand lower transaction costs by easing the requirements governing the financingof working capital and investment and by enforcing increased tradingtransparency, security and more modern trading operations and practices. A limiton daily price fluctuations was set, stock information and disclosure requirementswere standardised and credit ratings were made compulsory for all new bondissues. Broker commission rates were liberalised.

22 Argentina: Other services


Retail Retail trade had traditionally been organised around small, specialised, owner-operated shops. The expansion of supermarket chains in the 1990s has radicallytransformed the market. Major retail chains have increased concentration andmodernised outlets and technologies. This process has advanced farthest in theBuenos Aires metropolitan area, but is also taking hold of other large urbancentres such as Rosario, Córdoba and Mendoza. The share of super- markets intotal food sales is projected to increase to 85% in large urban centres, up fromthe 65% recorded in 1996. The wholesale trade market has also been trans-formed by the growing sophistication of stock management techniques.

Tourism Tourism has experienced rapid growth in the 1990s, fuelled by a rising numberof foreign visitors. Argentina has become the favourite destination in SouthAmerica and the fourth most popular in the continent (see Reference table 16).Among the country’s attractions are beautiful and unspoilt natural scenery, acosmopolitan urban centre and relatively minor security problems. Hotel infra-structure has improved following the arrival of major international hotelchains. By 2005 the number of visitors is expected to increase twofold from thelevel recorded in 1996. To cope with this demand at least 15 new world-classhotels are under construction in Buenos Aires alone. The boom is set to expandinto the provinces.

Production

Manufacturing

Adapting to a morecompetitive environment

Until the late 1970s manufacturing expanded behind high protective barriers.The result was a diversified manufacturing base focused on the domesticmarket. A combination of rapid trade liberalisation and an appreciating dom-estic currency triggered de-industrialisation in the late 1970s. The pattern wasmaintained during the 1980s. Slow output growth and macroeconomic insta-bility led many foreign firms to abandon the country.

The Convertibility Law and structural reform brought deep changes to themanufacturing sector. Privatisation eliminated the public sector’s role as aproducer of industrial goods in sectors such as steel and petrochemicals. Tradeliberalisation, in turn, intensified competitive pressures and forced firms toincrease productivity and rationalise. The result was an increase in concentra-tion and internationalisation through both greenfield investments and foreignacquisitions. While output of the largest firms rose, that of small and medium-sized business contracted sharply. Aggregate output reached new record levelsin the late 1990s, as natural resource-intensive sectors increased their contrib-ution to total production. In some sectors, such as automobiles, investment incapital equipment sharply increased productivity.

Modernisation has raised the import coefficient of industry, which now reliesmore heavily on foreign parts and components. At the same time, foreignmarkets have become critical for some sectors previously focused on thedomestic market (such as automobiles). Other sectors, for which foreign mar-

Argentina: Manufacturing 23


kets were traditionally important, such as food processing, have diversifiedtheir exports.

Foreign direct investmentrevives

The revival of foreign direct investment—stimulated by faster economicgrowth and a liberal regulatory regime—has been crucial to the modernisationof industry. The share of foreign firms in the total sales of the largest 500industrial companies surged from 34% in 1990 to over 51% in the mid-1990s,while the number of foreign firms among the largest 500 industrial companiesalmost doubled (from 116 to 212). Established foreign investors were quick toadapt to the new economic environment, raising productivity through green-field investments, rationalisation and the introduction of new organisationand control techniques. Newcomers were attracted by the rapid growth indemand and market potential.

Finance remains scarce, except for the largest domestic and foreign firms thatcan tap international capital markets. This partly explains the spate of foreignacquisitions of industrial companies in the 1990s. The stockmarket has notbecome a significant source of venture capital for industry. (Detailed manufac-turing statistics are given in Reference tables 17-20.) Although foreign invest-ment by home-based firms is still modest, it has increased rapidly in the 1990s.Domestic firms in the steel, energy, construction and food-processing indus-tries have ventured abroad, particularly in Latin America.

The manufacturing sector(1984=100 unless otherwise indicated)

% change % change1997 1997/90 1997/96

Industrial output index 124.1 36.4 10.2

Non-durable consumer goodsFood 129.3 27.7 3.3Beverages 124.1 49.2 5.8Tobacco 98.6 16.3 –1.3

continued

Industrial policy

In the 1990s industrial policy evolved towards market orientation for reasons ofprinciple as well as resources. Poorly implemented subsidies in the 1970s and1980s wasted public money and had little positive effect on long-run economicperformance. Fiscal constraints in the 1990s ended this approach and shiftedemphasis towards “horizontal” (non-discriminatory) policies.

The public sector played a major active role only in the automobile sector, whereincentives and intra-regional free-trade boosted investment and output. Theautomobile industry is a prime example of regional specialisation and division oflabour. Established manufactures now produce a small number of models for thedomestic and regional markets, while they import other varieties. A Mercosurcommon regime currently under negotiation will govern the automotive industryfrom 2000.

24 Argentina: Manufacturing


% change % change1997 1997/90 1997/96

Intermediate goodsAgrochemicals 193.1 57.3 27.4Mineral chemicals 101.3 –22.5 –4.2Plastic & rubber inputs 133.5 5.5 –4.5Iron & steel 166.7 46.8 5.8Aluminium 135.9 13.1 0.8Petrochemicals 93.5 –7.8 –4.9Tyres 155.3 69.8 12.4Processed petroleum 111.9 14.8 9.6Textile inputs 106.3 1.1 10.6Cement 129.6 89.2 32.1Paper & cellulose 124.8 22.9 0.7

Durable consumer goodsElectrical household appliances 124.7 95.8 2.8Automobiles 262.9 500.2 48.1Non-electrical household appliances 83.4 84.1 9.6Tractors 44.4 –11.5 –19.8Capital goods inputs & capital goods 25.6 –40.4 –8.4

Exports of manufactures ($ m)Agricultural 9,083.7 94.1 35.0Industrial 8,293.3 146.5 29.0Manufacturing productivity index (1982=100) 125.6 70.4 6.8Manufacturing employment (1990=100) 89.8 –15.9 2.0Hours worked (1990=100) 91.4 –8.7 3.9

Memorandum itemShare of manufacturing output in GDP (constant prices; %) 24.8 – –Source: Fundación de Investigaciones Económicas para Latinoamericanas (FIEL).

Mining and semi-processing

Except for natural gas and petroleum Argentina lacks a mining tradition. Yet itdisplays geological characteristics similar to neighbouring countries with moredeveloped mining activities. In the past mining activity has been largely re-stricted to supplying inputs for the domestic construction industry. Most metalmining reserves are located in the Andes mountain range in the west of thecountry. There are large copper and gold deposits in Catamarca and San Juanprovinces, uranium deposits in Mendoza and zinc deposits in Jujuy. (Mineraland quarrying output statistics are given in Reference table 21.)

Foreign investment in mining has increased rapidly. A new regulatory frame-work enacted in 1993 removed restrictions on foreign investors, guaranteedfiscal stability for 30 years, placed a 3% cap on the annual royalties paid toprovincial governments, allowed accelerated depreciation of fixed investmentsand applied zero tariffs to capital goods imports. In the short term projectedinvestments will suffer a setback as a result of depressed world copper prices.However, by 2000 the total value of mining output is scheduled to increasenearly fourfold over 1996. A new mining agreement with Chile (awaiting Con-gressional approval) will benefit projects in border areas where access is easierfrom the Chilean side.

Argentina: Mining and semi-processing 25


Major planned investment in the mining sectorAnnual

Investment output StartingProject Investor Mineral Province ($ m) ($ m) date

Cerro Vanhguardia Minera Mincorp Gold/silver Santa Cruz 200 120 1998

Potasio Rio Colorado Potasio Rio Colorado Potassium salt Mendoza 150 120 1999-2000

San Jorge Minera Aconcagua Copper Mendoza 100 n/a 1999-2000

El Pachón Pachón SA Copper/molybdenum San Juan 900 240 2002

Agua Rica BHP Minerals Gold/copper/molybdenum Catamarca 1,000 n/a 2002

Pirquitas Sunshine Silver/tin Jujuy 100 n/a 2002Source: Subsecretaría de Minería.

Petroleum and natural gas comprise the bulk of mining output. In 1990-97petroleum and natural gas extraction increased at annual average rates of 8.1%and 7%, respectively. Petroleum reserves are estimated at about nine years ofproduction at present extraction rates. Natural gas proven reserves, in turn, willlast for 20 years (reserves are twice as high if probable and possible reserves areincluded). Extraction rates are set to increase as a regional market for naturalgas develops, following the construction of pipelines linking Argentina’s fieldsto consumer markets in Brazil and Chile.

Agriculture and forestry

Agriculture and livestock Agriculture’s share of less than 8% of GDP (1990-97 average) understates itscontribution to the economy. Agriculture and agro-industries account fornearly one-third of total goods output and nearly 60% of total exports. Agricul-tural output expanded rapidly in the 1990s, aided by favourable world prices(until 1996) and a positive domestic economic environment. Total output ofcereals and oilseeds almost doubled, to reach a record 66m tonnes in the1997/98 harvest. Since the area under cultivation expanded at a much lowerpace than total production, the rise in output was largely the result of im-proved yields. Technical change (the use of fertilisers, modern machinery andnew production techniques) played an important role in boosting output,which was also stimulated by favourable relative price movements followingtrade liberalisation and the termination of foreign-exchange controls. Thegradual recovery of credit encouraged by macroeconomic stability also contrib-uted. Lower prices since 1997 have negatively affected farmers’ income.

Output and exports of key crops, 1997/98a

(’000 tonnes)

Output Exports

Wheat 14,800 9,900

Maize 19,304 13,300

Soybeans 18,718 3,200

Sorghum 3,768 1,000

Sunflower 5,400 500

a Estimates.

Source: Secretaría de Agricultura, Ganadería, Pesca y Alimentación.

26 Argentina: Agriculture and forestry


In contrast to arable farming, livestock has been stagnant since the early 1980s.Low international prices and a shift in consumer preferences away from beefhave negatively affected livestock and meat-processing. However, the medium-term outlook for the sector looks promising. In 1997 Argentina was declaredfree of foot-and-mouth disease, which has opened premium markets for Argen-tine beef.

Agricultural policies areoverhauled

Government policies towards agriculture were overhauled in the early 1990s.All export taxes have been eliminated and key transport networks—such as theBuenos Aires-Bahía Blanca railway—grain elevators and port facilities havebeen privatised. Moreover, the sector was completely deregulated with theremoval of foreign-exchange controls and the elimination of the NationalGrains Board and the National Meat Board. Trade liberalisation reduced thecost of imported inputs and machinery.

Agriculture will benefit from rising world food demand (the dampening effectof the Asian crisis will be temporary) and gradual liberalisation of agriculturaltrade. Average world tariffs are still high for many agricultural products andmay be cut if a new round of negotiations is launched in the World TradeOrganisation. The projected enlargement of the European Union will createincentives for more liberal trade policies and lower subsidies. Regional marketswill continue to grow in importance for Argentinian agriculture.

Fishing and forestry Fishing and forestry have traditionally been marginal activities. Althoughfishing expanded rapidly in the 1990s, the pace is unlikely to be sustained inorder to prevent stock depletion. A large share of fishing output is exportedunprocessed.

Land availability, adequate infrastructure and a favourable incentives regimewill stimulate forestry in the future. Although the area planted with forests hasgrown rapidly in recent years, it is only 4% of the potential area. A newincentives regime (similar to that for the mining industry) will provide invest-ors with long-term stability. According to official projections, the area plantedto forest will reach 3m ha in ten years, providing the basis for further expan-sion of the cellulose and paper industries.

Construction

Construction activity boomed during the 1990s, growing at an average annualrate of 11%, despite the downturn in the 1995 recession. Owing to the publicsector’s budget constraint, the recovery in construction (both residential andnon-residential) has been driven by the private sector. The share of the publicsector in total construction investment nearly halved between 1989 and 1996.

Residential construction expanded under the positive influence of pent-updemand and the recovery of mortgage credit brought about by economic stab-ilisation. Mortgage credit was one of the fastest-growing components of totalcredit granted to the non-financial private sector. New instruments, such asmortgage securitisation, opened new opportunities for financial engineering tosustain construction growth.

Argentina: Construction 27


Non-residential construction boomed, pushed by construction of shoppingmalls, major urban renewal projects and modernisation of infrastructure. For-eign investors have taken part in the boom, particularly in infrastructure andshopping malls. Foreign consortia have participated in all major highway con-struction projects in association with domestic firms.

Residential construction is set to expand, but will remain vulnerable to changesin the financial environment. Major urban renewal projects in Buenos Airesand suburban developments will offer profitable investment opportunities.(Construction statistics are given in Reference table 24.)

The external sector

Merchandise trade

Foreign trade, 1997($ m unless otherwise indicated)

Exports fob 26,273 Manufactures of agricultural origin 8,074 Manufactures of industrial origin 8,291 Primary products 5,699 Petroleum products 3,259

Imports cif –30,449 Capital goods, parts & accessories 13,262 Intermediate goods 10.087 Consumption goods 4,536 Petroleum products 969 Passenger vehicles 1,564 Others 31

Trade balance –4,176 Balance with Brazil 1,151 Balance with US –3,889 Balance with EU –4,336

Exports (% growth)Value 10.1Volume 14.4Unit value –3.7

Imports (% growth)Value 27.7Volume 30.1Unit value –1.7

Purchasing power of exports in 1993 dollars (1993=100) 192.5

Terms of trade (1993=100) 107.5Source: INDEC.

Foreign trade grows After a long period of stagnation Argentina’s foreign trade increased rapidly inthe 1990s, taking its share in total world exports from 0.36% in 1990 to 0.48%in 1997. Although Argentina’s foreign trade coefficient has increased signif-icantly in the 1990s, it still is relatively low (17% in 1997-98). The trade balancehas moved in parallel to aggregate demand growth. After recording a tradesurplus in 1995-96 (due to the effects of the “tequila” crisis), the trade balance

28 Argentina: Merchandise trade


swung into deficit again. In 1998 the trade balance is scheduled to post a recorddeficit of $5.5bn (fob basis).

Exports grow After stagnating during the earlier years of the decade, exports expanded rap-idly after 1994. Between 1994 and 1998 export values increased at an averageannual rate of 16%. Initially, growth was driven by high commodity prices,rapid demand growth in Brazil and the 1995 recession. However, since 1996exports have risen despite the recovery of domestic demand. Since mid-1997foreign sales have been affected by lower commodity prices, although volumeshave sustained an upward trend.

Structural reform has contributed to eliminating the anti-export bias whichlong characterised Argentina’s economy. Trade liberalisation gave firmscheaper access to foreign inputs and capital goods. The termination of foreign-exchange controls and export taxes improved the relative price of exportables.Deregulation and privatisation also stimulated exports by boosting output, asin the energy sector, while regional integration (the creation of Mercosur’scustoms union) boosted demand for Argentinian goods, particularly in Brazil.

The structure of exports continues to be dominated by natural resource inten-sive products, which makes Argentina’s exports vulnerable to volatile inter-national prices. Energy products, agricultural commodities and agriculturalmanufactures account for nearly 70% of total exports. The five largest exportclusters are soybeans, automobiles, natural gas and petroleum, wheat, andcorn, which together account for nearly half of total exports. An additionalquarter is accounted for by sunflower, fish, leather, meat and steel products.During the 1990s the automobile and dairy clusters were the fastest-growingexport sectors, recording average annual growth rates of nearly 50%. (Detailedexport statistics are given in Reference tables 25, 27 and 28.)

Changes in export markets The regional composition of exports changed in the 1990s. Between 1990 and1997 exports to Brazil increased more than fivefold, while Brazil’s share in totalArgentinian exports more than doubled to reach over 30% in 1997. Highersales to Brazil accounted for more than half of total export growth.

New export clusters

The single largest manufacturing export cluster is automobiles. Automobileexports have increased eightfold between 1992 and 1997 to nearly $3bn. Exportgrowth was stimulated by specialisation, improved access to the Brazilian marketand a special sector regime which granted incentives for companies establishingassembly lines in Argentina. Dairy exports increased eightfold between 1992 and1997, mainly to Brazil.

A growing number of firms have engaged in the export business. The totalnumber of exporters trebled in the last decade to 12,000. Most are newcomerswhich purchased existing firms (in sectors such as food-processing), took part inprivatisations and then engaged in export activities (such as in steel, natural gasand petroleum and petrochemicals) or established greenfield plants to takeadvantage of new market opportunities (such as automobiles).

Argentina: Merchandise trade 29


The role of the regional market has been important for manufactured exports.Mercosur accounts for nearly two-thirds of Argentina’s exports of manufac-tures, with an ever higher share in textiles (72%) and automobiles (90%).Concentration in the regional market has made Argentina’s exports more vul-nerable to changing conditions in the region (particularly Brazil). But it hasalso offered vast opportunities for trade expansion. (Historical statistics onmain trading partners are given in Reference table 29.)

Main trading partners, 1997($ m)

Exports to: % of total Imports from: % of total

Mercosur 36 Mercosur 25 of which: of which: Brazil 31 Brazil 23

US 8 US 20

Chile 7 Italy 6

Netherlands 3 Germany 5

China 3 France 5Source: INDEC.

Imports The main factor behind the widening trade deficit has been rapid importgrowth. Imports were repressed for most of the 1980s, when the economymade large resource transfers abroad. Since the early 1990s imports have grownrapidly, increasing eightfold between 1990 and 1998. Domestic demandgrowth, trade liberalisation and real exchange-rate appreciation have all con-tributed to import growth. Imports increased at rapid rates in the first half ofthe 1990s (56% annual average rate), but slowed down thereafter. (Statistics onimports are given in Reference tables 26-28.)

The composition of imports changed significantly in the 1990s, with capitalgoods and their parts and accessories accounting for a growing share. Highercapital goods imports have made a significant contribution towards the mod-ernisation of the economy and higher productivity. Despite the rapid growth

Trade policy

Since Argentina is expected to remain committed to the fixed nominal exchangerate, improvements in competitiveness will depend on lower production costsand higher productivity. This will demand the maintenance of high investmentrates and greater competition in the provision of infrastructure services.

Fiscal constraints make an active export promotion policy unlikely. But exportfinancing and foreign trade promotion need to be enhanced. The establishmentof Export-Ar in 1993 has contributed to the participation of Argentinianbusinessmen in fairs and trade missions but its role has been modest as a supplierof information and co-ordination to inexperienced exporters.

Guaranteeing stable market access to Mercosur will rank high among officialpriorities. Two major challenges will be to improve the existing dispute-settlementmechanism and to deal with asymmetric public policies (particularly state aid toindustry). Enforcement of common trade policies will gain importance after 2000.

30 Argentina: Merchandise trade


of imports in the 1990s, Argentina’s import coefficient remains comparativelylow (9% of GDP), which suggests continued import growth in the future.

Invisibles and the current account

An invisibles deficit Argentina’s invisibles balance has traditionally been negative, dragged downby high net factor payments abroad. Argentina is a net importer of real services,which in 1997 recorded a $3.3bn deficit. Travel and transportation are thelargest contributors to the imbalance, which has grown steadily since 1995.

Net factor payments abroad have been even larger, reaching $4.2bn in 1997.Although lower interest rates in the 1990s eased the burden posed by interestpayments on the external debt, the latter remain a drain on the invisiblesaccount. Following the surge in foreign investment in the 1990s net profitremittances have increased steadily, reaching $2.4bn in 1997, a figure evenhigher than net interest payments ($1.8bn).

Interest payments In 1993 interest payments abroad fell to $3.2bn, the lowest value since 1980,but they more than doubled to $7.1bn in 1997. The non-financial publicsector, which is the largest external debtor, is responsible for two-thirds ofinterest payments abroad. By contrast, a similar share of total interest revenueaccrues to the private sector. Interest credits have nearly doubled since 1994,owing to higher interest rates and the rise in international reserves.

Profit and dividends Net profit and dividend payments abroad have risen steadily owing to a higherstock of foreign direct investment. Between 1992 and 1997 profit remittancesabroad more than doubled, to reach a total of $2.4bn. Profit remittances repre-sent over one-third of total interest payments abroad. Since Argentinians donot have large direct investments abroad, investment income is negligible(only $136m in 1997).

Transfers and thecurrent-account deficit

Transfer payments make a relatively small contribution to the current account,yielding a net inflow of $347m in 1997, most of which is private. Pensionpayments from countries of origin to European expatriates (mainly Italians)account for a large part of incoming private transfers.

In 1994 the current-account deficit reached $10.1bn (3.6% of GDP), a sharpcontrast to the $4.6bn current-account surplus recorded in 1990, at the heightof hyperinflation. In a remarkable adjustment, the reduction in net capitalflows after the Mexican crisis reduced the current-account deficit to $2.8bn (1%of GDP) in 1995. But the deficit widened swiftly thereafter, to reach $9.4bn in1997 (3% of GDP) and an estimated record of $14.1bn in 1998 (4% of GDP).(IMF presentation of the balance of payments is given in Reference table 30;the national breakdown is in Reference table 31.)

Argentina: Invisibles and the current account 31


Balance of payments, 1997($ m)

Current-account balance –-9,429 Merchandise trade balance (fob) –2,287 Real services –3,299 Financial services –4,190 Transfers 347

Capital-account balance 12,491 Banking sector –1,766 Non-financial public sector 7,328 Non-financial private sector 9,988 Others –-3,059

Change in net international reserves 3,062Source: Banco Central de la República Argentina.

Capital flows and foreign debt

Rapid growth of externalliabilities—

During the 1990s Argentina has relied heavily on foreign capital inflows. Aftera Brady debt restructuring agreement with commercial banks was signed in1993 (whereby bank debt was retired and replaced with bonds at a discount)and voluntary access to international capital markets was restored, the stock ofexternal debt increased rapidly. By the end of 1997 total gross external liabil-ities reached $109.4bn—equivalent to 34.1% of GDP and 375% of annualgoods and real services export earnings. (World Bank figures on debt are givenin Reference table 32.)

Foreign debt ratios, 1997(%)

Total external debt/GDP 34.1

Interest payments/exports of goods & real services 24.3

Total external debt/exports of goods & real services 375.0Source: Banco Central de la República Argentina.

—as capital flows in Foreign capital inflows have increased steadily throughout the 1990s. In 1992-94 they totalled $32.2bn, of which privatisations contributed $13.5bn. TheMexican peso devaluation of December 1994 resulted in a sharp increase inArgentina’s country risk premium. Capital flows reversed and Argentinian assetprices plummeted. Although by mid-1995 the government had succeeded instemming the outflow of capital, the shock exposed Argentina’s vulnerabilityto changes in sentiment in international capital markets. Net capital inflowsfell from $10.7bn in 1994 to only $2.7bn in 1995, plunging the economy intoa deep recession.

The government’s resolve to stick to the fixed exchange rate and improvedconditions in international financial markets led to a new bonanza in 1996 and1997, when net capital inflows reached $7.6bn and $12.5bn, respectively. Inthis period the non-financial public sector received annual average capital in-flows of $8bn, an almost twofold increase over the $4.1bn recorded in 1992-94.Foreign direct investment reached $5.7bn per year, higher than the $3.6bnrecorded in 1992-94, at the height of the privatisation programme.

32 Argentina: Capital flows and foreign debt


Turbulence in international financial markets following the East Asian crisis of1997 (and especially the Russian collapse of 1998) again exposed the con-straints imposed by Argentina’s dependence on foreign savings. Although theavailability of foreign finance has contracted, in contrast to 1995 this timeArgentina has not suffered capital flight.

Gross external debt by resident sector, Jun 1998

$ m % of total

Public sector (incl Central Bank) 76,507 64.7 Public bonds 52,231 44.2 International organisations 15,737 13.3 Official creditors 7,257 6.1 Commercial banks 1,128 1.0 Suppliers’ credit & others 154 0.1

Non-financial private sector 16,969 14.4 Private bonds 15,113 12.8 International organisations 883 0.7 Private banks 973 0.8 Direct financial liabilities n/a n/a Direct trade liabilities n/a n/a

Financial sector (excl Central Bank) 24,773 20.9 Bonds 6,044 5.1 Credit lines 7,308 6.2 International organisations 434 0.4 Deposits 2,466 2.1 Miscellaneous liabilities 8,521 7.2

Total gross external debt 118,249 100.0Source: Secretaría de Hacienda.

Foreign reserves and the exchange rate

Foreign reserves growth As in the first half of the 1990s, large capital inflows since 1995 have led tosteady growth of foreign-exchange reserves. Foreign-exchange reserves (exclud-ing holdings of dollar-denominated Argentinian public debt) of the BancoCentral de la República Argentina (the Central Bank) increased from $14.3bn atend-1995 to $22.3bn at end-1997. The accumulation of foreign-exchange re-serves levelled off in 1998, as capital inflows were affected by the financial crisisin emerging markets. In mid-June international reserves were equivalent tomore than seven months of goods and real services imports. (Foreign reservesdata are given in Reference table 33.)

Foreign reserves, Jun 1998($ m)

Gold 122

Foreign exchange & foreign-exchange deposits 23,248

International reserve assets 23,405

Foreign-currency denominated public debt 1,712

Total international reservesa 25,117

a Total international reserves as defined by the Convertibility Law.

Source: Banco Central de la República Argentina.

Argentina: Foreign reserves and the exchange rate 33


The real exchange rateweakens

The exchange rate has been pegged at parity with the US dollar since theConvertibility Law of April 1991, which requires a change in law for anymodification in the nominal exchange rate. Initially, the fixed nominal ex-change rate led to a sizeable real appreciation of the domestic currency. Butsince 1994 domestic inflation has converged towards OECD rates and since1996 it has been lower than in the US. As a result, since 1996 the real exchangerate (measured in terms of price differentials with the US) has depreciated bynearly 5%. However, over the same period the US dollar has strengthenedagainst other major currencies, leading to a real appreciation of the pesoagainst European currencies and the yen. (Exchange rates are given in Refer-ence table 34.)

The fixed nominalexchange rate will stay in

place

The fixed exchange rate has been instrumental in stabilising the economy andcompensating for a lack of credibility on the part of policymakers. Althoughthe currency board mechanism has curtailed policy discretion, almost no one(either in government or the opposition) advocates abandoning the fixed ex-change rate. The rationale of this stance is that the costs associated with deval-uation in Argentina’s dollarised economy would outweigh any benefits. Theonly scenario in which the Convertibility Law might be abandoned would beif a sustained run against the banks were to threaten a systemic collapse of thebanking system.

34 Argentina: Foreign reserves and the exchange rate


Appendices

Sources of information

National statistical sources Banco Central de la República Argentina, Boletín Estadístico (monthly)

Banco Central de la República Argentina, Estados Contables de las EntidadesFinancieras (monthly)

INDEC (Instituto Nacional de Estadística y Censos), Anuario Estadístico de laRepública Argentina (yearly)

INDEC, Censo Nacional Económico 1994, Avance de Resultados

INDEC, Censo Nacional de Población y Vivienda 1991

INDEC, Comercio Exterior Argentino (yearly)

INDEC, Encuesta Industrial (quarterly)

INDEC, Encuesta Nacional Agropecuaria (yearly)

INDEC, Encuesta Permanente de Hogares, Gran Buenos Aires (biannual)

INDEC, Encuesta Permanente de Hogares, Total de aglomerados (biannual)

INDEC, Estadísticas de Productos Industriales (biannual)

INDEC, Indec Informa (monthly)

INDEC, Indicador de Demanda Laboral (monthly)

INDEC, Indice del Costo de la Construcción (monthly)

INDEC, Indice de Precios al Consumidor (monthly)

INDEC, Indice de Precios al por Mayor (monthly)

INDEC, Indice de Salarios básicos de convenio de la industria y la construcción(monthly)

INDEC, Intercambio Comercial Argentino (monthly)

INDEC, Navegación Aerocomercial (yearly)

INDEC, Situación y Evolución Social, Síntesis (yearly)

Ministerio de Economía, Boletín Fiscal (quarterly)

Ministerio de Economía, Estimaciones Trimestrales del Balance de Pagos (quarterly)

Ministerio de Economía, Informe Económico (quarterly)

Secretaría de Agricultura, Ganadería y Pesca, Estadísticas Agropecuarias yPesqueras (yearly)

Secretaría de Agricultura, Ganadería y Pesca, Estimaciones Agrícolas (weekly)

Secretaría de Energía, Boletín Mensual de Combustibles (monthly)

Argentina: Sources of information 35


Secretaría de Hacienda, Ingresos y Egresos de la Tesorería (monthly)

Subsecretaría de Inversiones, Informe sobre Privatizaciones (quarterly)

International sources IMF, International Financial Statistics (monthly)

UN, Anuario estadístico de la Unesco

UN, Monthly Bulletin of Statistics

WHO, World Health Statistics (annual)

World Bank, Global Development Finance (annual)

World Bank, World Development Report (annual)

Select bibliography Roberto Bouzas, Paula Gosis y Hernán Soltz, Argentina to 2010. From structuralreform to sustained growth, Research Report, The Economist Intelligence Unit

Miguel A M Broda y Asociados, Carta Económica (monthly), Buenos Aires

Comisión Económica para América Latina y el Caribe (CEPAL), Notas sobre laEvolución de la Economía Argentina (yearly)

Economist Intelligence Unit, Argentina Country Forecast (quarterly), London

Economist Intelligence Unit, Argentina Country Report (quarterly), London

Economist Intelligence Unit, Motor Business International (1st quarter 1995),London

Fundación de Investigaciones Económicas Latinoamericanas , Indicadores de Coyuntura (monthly), Buenos Aires

Instituto de Estudios Económicos sobre la Realidad Argentina y Latinoamericana, Fundación Mediterránea Newsletter (monthly), Buenos Aires

William C Leitch, South America’s National Parks, The Mountaineers, Seattle,Oregon, 1990

Félix Luna, Breve Historia de los Argentinos, Editorial Planeta, Buenos Aires, 1993

David Rock, Authoritarian Argentina: The Nationalist Movement; Its History and ItsImpact, University of California Press, Berkeley, 1993

Subsecretaría de Inversiones, Ministerio de Economía, Investing in Argentina(bi-monthly), Buenos Aires

36 Argentina: Sources of information


Reference tables

Reference table 1

Government finances (non-financial national public sector)(Ps bn)

1993 1994 1995 1996 1997

Current revenue 50.1 50.3 49.0 46.9 54.6 Tax revenue 42.4 45.7 44.7 43.4 50.5 Other current revenue 7.7 4.6 4.3 3.5 4.1

Current expenditure 44.2 47.5 48.4 49.4 55.9 Personal services 7.6 7.6 7.2 7.2 7.5 Transfers to the national social security system 12.5 15.2 15.6 15.4 17.2 Interest on the public debt 2.9 3.2 4.1 4.6 5.7 Other transfers & current spending 21.2 21.5 21.5 22.1 25.5

Current savings 5.9 2.8 0.6 –2.5 –1.2

Capital revenue 0.7 0.8 1.3 0.8 0.7 Privatisations 0.5 0.7 1.2 0.4 0.3 Others 0.2 0.1 0.1 0.4 0.4

Capital expenditure 3.8 3.9 3.2 3.6 3.8

Total revenue 50.8 51.1 50.3 47.7 55.4

Total expenditure 48.0 51.4 51.6 53.0 59.6

Balance 2.7 –0.3 –1.3 –5.3 –4.3

Primary surplus 5.6 2.9 2.8 –0.7 1.5Primary surplus, excl privatisations 5.1 2.1 1.5 –1.1 1.2

% of GDPCurrent revenue 19.6 17.9 17.5 15.8 16.9Capital revenue 0.3 0.3 0.5 0.3 0.2Total revenue 19.9 18.2 18.0 16.0 17.1Current expenditure 17.3 16.9 17.3 16.6 17.3Capital expenditure 1.5 1.4 1.1 1.2 1.2Total expenditure 18.8 18.3 18.5 17.8 18.4Balance 1.1 –0.1 –0.5 –1.8 –1.3Primary surplus 2.2 1.0 1.0 –0.2 0.5Primary surplus, excl privatisations 2.0 0.7 0.5 –0.4 0.4Source: Secretaría de Hacienda.

Argentina: Reference tables 37


Reference table 2

Money supply(average)

1993 1994 1995 1996 1997

Monetary base (Ps m) 13,090 15,800 14,756 17,755 20,049

Currency in circulation ($ m) 7,786 9,553 9,798 10,682 11,983

M1 ($ m) 13,414 16,450 17,357 19,850 23,440

M3 ($ m) 24,997 31,229 29,121 34,141 41,940

M3 plus dollar deposits ($ m) 39,725 52,197 51,170 60,596 74,251

M1 (% of GDP) 5.2 5.8 6.2 6.7 7.2

M3 (% of GDP) 9.7 11.1 10.4 11.5 13.0

M3 plus dollar deposits (% of GDP) 15.4 18.5 18.2 20.2 23.0

Note. M1: notes and coins plus peso-denominated demand deposits. M3: M1 plus peso-denominated interest-bearing deposits.

Sources: Banco Central de la República Argentina; Carta Económica.

Reference table 3

Interest rates(%; annual average)

1993 1994 1995 1996 1997

Interbank rate 6.4 7.3 9.7 6.2 6.7

Term deposits 10.2 8.0 12.0 7.4 7.0

Private loans rate 30.2 28.4 32.9 28.4 26.6Source: Carta Económica.

Reference table 4

Gross domestic product(Ps m unless otherwise indicated)

1993 1994 1995 1996 1997a

Total GDP at current prices 257,570 281,645 279,543 297,359 323,386 GDP per head (Ps) 7,632 8,207 8,040 8,443 9,066

Total GDP at constant 1986 prices 11,770 12,712 12,201 12,785 13,884 % change 5.7 8.0 –4.0 4.8 8.6

a Estimates.

Source: Secretaría de Programación Económica.

38 Argentina: Reference tables


Reference table 5

Gross domestic product by expenditure(Ps m unless otherwise indicated; constant 1986 prices)

1993 1994 1995 1996 1997a

Consumption spending (incl inventory change) 10,022 10,696 10,078 10,695 11,525 % change 5.3 6.7 –5.8 6.1 7.8 % of total 85.2 84.1 82.6 83.7 83.0

Gross domestic investment 2,400 2,896 2,434 2,648 3,350 % change 15.3 20.7 –16.0 8.8 26.5 % of total 20.4 22.8 19.9 20.7 24.1

Exports of goods & real services 1,188 1,377 1,684 1,798 2,016 % change 4.7 15.9 22.3 6.7 12.1 % of total 10.1 10.8 13.8 14.1 14.5

Imports of goods & real services 1,840 2,257 1,994 2,356 3,006 % change 14.9 22.6 –11.6 18.2 27.6 % of total 15.2 17.8 16.3 18.4 21.7

Total GDP 11,770 12,712 12,201 12,785 13,884 % change 5.7 8.0 –4.0 4.8 8.6

a Estimates.


Reference table 6

Gross domestic product by sector(Ps m unless otherwise indicated; constant 1986 prices)

1993 1994 1995 1996 1997a

Agriculture, forestry & fishing 871 905 949 978 1,010 % change 2.4 3.9 4.9 3.0 3.3 % of total 7.4 7.1 7.8 7.7 7.3

Mining & quarrying 294 319 347 381 411 % change 10.0 8.6 8.7 9.7 7.9 % of total 2.5 2.5 2.8 3.0 3.0

Manufacturing 3,023 3,185 2,997 3,157 3,448 % change 4.6 5.4 –5.9 5.3 9.2 % of total 25.7 25.1 24.6 24.7 24.8

Electricity, gas & water 244 268 284 298 320 % change 11.1 9.9 5.9 5.0 7.4 % of total 2.1 2.1 2.3 2.3 2.3

Construction 677 775 700 709 876 % change 10.9 14.4 –9.7 1.3 23.6 % of total 5.8 6.1 5.7 5.5 6.3

continued



1993 1994 1995 1996 1997a

Commerce 1,942 2,072 1,923 2,045 2,257 % change 3.4 6.7 –7.2 6.4 10.4 % of total 16.5 16.3 15.8 16.0 16.3

Transport & communications 593 645 646 691 739 % change 5.3 8.8 0.1 7.0 6.9 % of total 5.0 5.1 5.3 5.4 5.3

Finance, insurance & real estate 1,771 2,010 1,978 2,121 2,282 % change 9.9 13.5 –1.6 7.2 7.6 % of total 15.0 15.8 16.2 16.6 16.4

Community, social & personal services 2,131 2,274 2,243 2,245 2,310 % change 4.2 6.7 –1.3 0.1 2.9 % of total 18.1 17.9 18.4 17.6 16.6

a Estimates.


Reference table 7

National income, savings and investment(% of GDP; constant 1986 prices)

1993 1994 1995 1996 1997a

Terms of trade effect 1.8 2.2 3.0 3.9 4.1

Net factor payments –1.7 –1.8 –2.2 –2.6 –2.8

National income 100.1 100.3 100.8 101.3 101.4

Consumption 84.3 83.1 81.7 82.4 81.9

Domestic savings 15.7 16.9 18.3 17.6 18.1

National savings 15.7 17.2 19.1 18.9 19.4

External savings 5.3 6.4 1.6 2.6 5.8

Balance on goods & real services –5.4 –6.7 –2.4 –4.0 –7.1

Gross domestic investment 21.0 23.6 20.7 21.5 25.2

a Estimates.

Source: Comisíon Económica para América Latina y el Caribe (CEPAL).

Reference table 8

Productivity and labour costs1993 1994 1995 1996 1997

Manufacturing productivity index (1993=100) 100.0 107.7 106.6 117.6 125.6 % change 6.0 7.7 –1.1 10.4 6.8

Index of real labour costsa (1991=100) 121.4 118.7 114.6 108.9 107.9 % change 7.1 –3.9 –1.9 –4.9 –1.0

Labour costsb ($; at current prices) 883.8 866.0 901.3 869.0 872.9 % change 8.0 –2.0 4.1 –3.6 0.5

a Deflated by industrial wholesale price index. b Exchange rate adjusted by export taxes and the statistical import levy.

Sources: Fundación de Investigaciones Económicas Latinoamericanas (FIEL); Instituto Nacional de Estadísticas y Censos (INDEC).



Reference table 9

Prices and earnings(annual average unless otherwise indicated)

1993 1994 1995 1996 1997

Consumer price index (1988=100; year-end) 305,512 317,288 322,389 322,564 323,622 % change 7.4 3.9 1.6 0.1 0.3

Wholesale price index (1993=100; year-end) 96.03 101.8 107.73 109.63 109.74 % change 0.1 6.0 5.8 1.8 0.1

Combined price index (1985=100; year-end) 3,927,635 4,121,554 4,274,333 4,320,458 4,306,982 % change 3.7 4.9 3.7 1.1 –0.3

Index of export prices (1993=100) 100.0 102.9 108.8 115.9 111.6 % change 0.2 2.9 5.7 6.5 –3.7

Index of import prices (1993=100) 100.0 101.4 106.9 105.6 103.8 % change –2.2 1.4 5.4 –1.2 –1.7

Terms of trade index (1993=100) 100.0 101.5 101.8 109.8 107.5 % change 2.5 1.5 0.3 7.9 –2.1

Real wage index (1991=100) 93.2 93.8 92.5 92.4 91.9 % change –1.6 0.6 –1.4 –0.1 –0.5

Real wage purchasing power index (1991=100) 97.3 98.1 97.1 97.0 96.5 % change –0.9 0.8 –1.0 –0.1 –0.5Sources: INDEC; FIEL.

Reference table 10

Population trends1993 1994 1995 1996 1997

Total population (m; mid-year) 33.9 34.3 34.8 35.2 35.7

Growth rate (% change) 1.34 1.32 1.31 1.30 1.28

Crude birth rate (per ’000) 20.2 20.0 19.9 19.7 19.5

Crude death rate (per ’000) 8.17 8.09 8.06 8.02 7.99

Infant mortality rate (per ’000) 24.2 23.7 23.1 22.4 21.8Source: INDEC.

Reference table 11

Labour force statistics

1993 1994 1995 1996 1997

Labour force (’000) 12,174 12,452 12,736 13,027 13,327

Participation ratea (%) 41.25 40.95 42.0 41.45 42.2

Number unemployeda (’000) 1,092 1,327 2,065 2,046 1,866

Unemployment ratea (%) 9.6 11.45 17.5 17.2 14.9

a Average of May and October figures.

Sources: INDEC; Secretaría de Programación Económica y Regional.



Reference table 12

Key transport statistics

1993 1994 1995 1996 1997

RailwayPassengers transported (m) 214.1 248.3 349.1 416.1 458.7Cargo loaded (’000 tonnes) 9,275 13,181 15,196 17,017 18,912

Road transportPassenger cars (’000) 4,856 4,427 4,665 4,784 4,902Goods vehicles (’000) 1,589 1,204 1,201 1,249 1,338Inter-urban passenger vehicles 2,934 3,278 3,695 3,443 3,706Passengers transported (m) 55.8 50.5 50.3 48.6 49.5Persons per passenger car 5.2 6.0 5.9 5.8 5.7

Air servicesTotal number of flight hours 148.4 182.2 201.4 239.2 252.5Passengers transported (’000) 7,958 9,517 10,127 11,460 12,669Cargo loaded (tonnes) 116,524 132,971 130,796 155,914 169,653

MaritimeVessel arrivals (Buenos Aires port) 1,846 1,851 1,519 n/a n/aNo. of containers handled (inward/outward) 450,335 532,681 504,630 n/a n/aSources: INDEC; Asociación de Fabricantes de Automóviles; Comisión Nacional de Regulación del Transporte; Anuario Portuario y Marítimo.

Reference table 13

National energy statistics

1993 1994 1995 1996 1997

Electricity generation (gwh) 58,788 61,589 64,591 68,318 73,000a

Total electricity demand (gwh) 52,782 55,738 57,830 61,490 66,017 of which: residential (%) 33.0 33.1 32.6 30.9 n/a industrial (%) 44.0 42.1 41.8 40.9 n/a

Natural gas output (m cu metres) 26,663 27,702 30,441 34,648 37,074

Petroleum output (’000 cu metres) 34,466 38,732 41,739 45,570 48,403Sources: INDEC; Secretaría de Energía.

a EIU estimate.



Reference table 14

Banking statistics(year-end)

1993 1994 1995 1996 1997

Financial institutions (no.) 206 205 158 147 138 Banks 167 168 127 120 113 National public 6 3 3 3 3 Provincial public 28 29 27 17 17 Private domestic 63 67 57 64 50 Private foreign 31 31 30 28 37 Co-operative 39 38 10 8 6 Non-banking financial institutions 39 37 31 27 25 Finance companies 21 21 18 18 16 Savings & loans 1 1 1 1 1 Credit houses 17 15 12 8 8

Assets (Ps m) 77,602 84,942 93,560 108,342 131,936 Public banks 34,826 36,050 34,653 37,326 39,952 Private banks & non-banking financial institutions 42,776 48,892 58,907 71,016 91,984Source: Banco Central de la República Argentina.

Reference table 15

Stockmarket indicators

1993 1994 1995 1996 1997

Merval index ($) 435.5 576.8 422.6 560.9 749.7

Market capitalisation ($ bn) 42.9 36.5 37.1 44.7 59.2

Share trading volume ($ m) 50,531 110,361 32,756 35,221 41,186

No. of stocks listed 165 157 144 140 129Source: Comisión Nacional de Valores.

Reference table 16

Tourism (number of visitors)(’000)

1993 1994 1995 1996 1997

Total visitors 3,532 3,866 4,101 4,286 4,540 of which from: border countries 2,558 2,786 2,898 2,985 3,135 European countries 444 480 507 539 575 US 220 261 299 317 357 rest of American continent 156 181 210 231 248Source: Secretaría de Turismo de la Nación.



Reference table 17

Manufacturing production1993 1994 1995 1996 1997

Manufacturing (Ps ’000; 1986 prices) 3,023 3,036 3,224 3,000 3,156 % change 4.6 4.3 6.1 –6.9 5.2

Volume indices (1986=100)Industrial production 111.2 116.6 107.9 115.1 126.5Food, beverages & tobacco 101.7 106.6 107.7 110.6 115.4Textiles 93.4 88.9 81.4 88.5 85.6Paper & cardboard 80.3 98.4 104.4 114.1 112.7Chemicals 123.3 133.7 140.6 150.1 156.5Cement 102.1 114.3 98.9 92.4 122.2Basic metal industries 105.7 123.6 128.8 141.5 148.5Machinery & equipment 130.3 131.7 98.5 109.0 137.5Sources: Secretaría de Programación Económica y Regional; Carta Económica.

Reference table 18

Output of main industrial products(’000 tonnes unless otherwise indicated)

1993 1994 1995 1996 1997

Vegetable oils 2,755 3,027 3,735 4,044 4,148

Steel 2,870 3,274 3,575 4,069 4,157

Aluminium 171 173 183 185 187

Cement 5,647 6,306 5,477 5,117 6,769

Paper 927 970 1,021 1,121 1,139

Sulphuric acid 194 192 180 193 187

Synthetic fibres 14.9 15.8 13.6 15.9 29.5

Automobiles (’000 units) 342 409 285 313 446

Tractors (units) 3,830 4,642 3,490 5,681 4,631

Tyres (’000 units) 6,243 7,329 7,174 7,593 8,532

Washing & drying machines (’000 units) 801 702 458 524 603

Colour TV sets (’000 units) 1,612 1,523 949 1,089 1,601Source: INDEC.

Reference table 19

Miscellaneous manufacturing statistics1974 1985 1994a

No. of establishments 126,388 109,372 104,738 Food, beverages & tobacco 27,462 28,499 24,216 Textiles, garments & leather products 18,310 12,353 11,722 Wood products, paper & printing 25,132 14,921 14,580 Chemical, rubber & plastic products 6,217 6,556 6,122 Non-metal mineral products 14,216 10,919 4,658 Metals, machinery, transport & others 35,051 36,124 40,226

Total manufacturing employment (no.) 1,525,221 1,381,805 1,110,117

Workers per establishment 12.1 12.6 10.6

a Number of sites (one site may host more than one establishment).

Source: INDEC, Censo Económico Nacional.



Reference table 20

Manufacturing sector’s sales to the domestic market(domestic output)

1993 1994 1995 1996 1997

Vehicles (units) 311,213 360,721 224,961 215,131 228,493 % change 27.9 15.9 –37.6 –4.4 6.2

Beverages (beer, wine & soft drinks; ’000 hl) 45,428 47,979 44,429 45,822 49,139 % change 0.4 5.6 –7.4 3.1 7.2

Machine tools (1985=100) 145.1 135.6 123.6 120.5 136.5 % change –9.3 –6.5 –8.8 –2.5 13.3

Pharmaceuticals (m units) 474.4 432.5 408.8 379.6 389.3 % change 3.6 –8.8 –5.5 –7.1 2.6

Cigarettes (m packets) 1,928.5 1,974.6 1,962.8 1,970.5 1939.8 % change 4.5 2.4 –0.6 0.4 –1.6

Tractors (units) 2,966 3,604 2,515 5,400 n/a % change –15.7 21.5 –30.2 114.7 n/aSource: INDEC.

Reference table 21

Minerals and quarrying output(Ps ’000; 1992 prices)

1993 1994 1995 1996 1997

Metallic minerals 44,137 40,821 42,357 40,288 107,541

Non-metallic minerals 126,264 119,249 123,717 149,457 156,272

Precious stones 308,024 306,647 345,209 351,768 378,232

Semi-precious stones 1,194 958 1,402 1,480 1,523

Total output 479,619 467,674 512,685 542,993 643,568Source: Subsecretaría de Minería.

Reference table 22

Agricultural production(’000 tonnes; crop years)

1993/94 1994/95 1995/96 1996/97 1997/98a

Cereals 23,810 26,129 23,832 36,106 40,483 of which: maize 10,360 11,404 10,518 15,536 19,304 wheat 9,659 11,306 9,445 15,914 14,800 sorghum 2,148 1,650 2,132 2,499 3,768

Oilseeds 16,154 18,352 18,638 16,820 24,870 of which: soybeans 11,720 12,134 12,448 11,000 18,718 sunflower 4,095 5,800 5,558 5,450 5,400

Industrial crops (raw cotton, sugar cane, tobacco & tea) 12,530 14,996 14,182 12,254 n/a

Fruit 5,812 5,934 n/a n/a n/a

Vegetables 5,201 5,301 n/a n/a n/a

a Estimates.

Source: Secretaría de Agricultura, Ganadería, Pesca y Alimentación.



Reference table 23

Livestock and fishing1993 1994 1995 1996 1997

Cattle stock (m) 52.7 53.2 52.6 50.9 50.1

Cattle slaughtered (’000) 11,895 11,880 11,584 11,453 11,162

Sheep slaughtered (’000) 4,388 4,459 3,948 3,767 3,640

Pigs slaughtered (’000) 2,081 2,167 1,926 1,390 1,259

Poultry (’000 tonnes) 500 520 565 546 575

Wool (’000 tonnes) 103 88 80 70 64

Milk production (m litres) 7,002 7,777 8,507 8,865 9,122

Fishing catch (tonnes) 919,503 938,602 1,136,899 1,238,942 1,339,615 of which: hake 468,245 465,529 621,015 661,153 637,688 squid 193,690 196,893 199,453 292,638 411,994 pollock 109,829 86,084 104,208 85,040 79,945 white corvina 12,805 18,261 30,030 23,674 26,190 anchovy 19,149 19,458 24,457 21,001 25,198 cod 23,788 20,338 23,265 21,950 21,917Sources: Secretaría de Agricultura, Ganadería , Pesca y Alimentación; INDEC, Dirección Nacional de Cuentas Nacionales.

Reference table 24

Key construction statistics

1993 1994 1995 1996 1997

No. of construction permits 62,812 81,677 68,016 65,887 69,575 Residential (%) 73.9 80.1 79.9 80.0 83.5 Non-residential (%) 26.1 19.9 20.1 20.0 16.5

Area covered by permits (’000 sq metres) 11,523 15,010 12,515 12,772 14,036 Residential (%) 60.2 65.2 61.4 62.2 63.8 Non-residential (%) 39.8 34.8 38.6 37.8 36.2

Cement sales (’000 tonnes) 5,641 6,298 5,476 5,188 6,796Source: INDEC.

Reference table 25

Exports($ m; fob)

1993 1994 1995 1996 1997

Food & live animals 5,319 5,579 7,208 9,237 9,879

Beverages & tobacco 162 160 269 283 377

Non-edible crude materials 984 1,503 1,835 1,941 1,217

Mineral oils & fuels 1,235 1,651 2,167 3,088 3,061

Vegetable oils 1,070 1,525 2,085 1,889 2,193

Chemicals 708 935 1,337 1,348 1,536

Manufactures, classified mainly by material 1,685 1,984 2,870 2,754 3,065

Machinery & transport equipment 1,444 1,772 2,277 2,595 3,933

Miscellaneous manufactured articles 492 695 913 675 702

Non-classified goods 17 36 1 1 252

Total 13,118 15,839 20,963 23,811 26,217Source: INDEC.



Reference table 26

Imports($ m; cif)

1993 1994 1995 1996 1997

Food & live animals 777 993 970 1,027 1,216

Beverages & tobacco 96 97 92 89 111

Non-edible crude materials 541 592 715 788 1,024

Mineral oils & fuels 403 633 844 864 898

Animal & vegetable oils 19 25 31 48 66

Chemicals 2,357 3,017 3,591 4,389 4,885

Manufactures, classified mainly by material 2,240 2,783 2,921 3,415 4,546

Machinery & transport equipment 8,469 11,231 8,961 10,931 14,829

Miscellaneous manufactured articles 1,842 2,200 1,979 2,208 2,704

Non-classified goods 40 20 18 3 96

Total 16,784 21,590 20,122 23,762 30,377Source: INDEC.

Reference table 27

Key exports and imports($ m)

1993 1994 1995 1996 1997

ExportsMineral oils & fuels 1,236 1,651 2,169 3,089 3,063Cereals 1,454 1,333 1,863 2,560 2,986Vehicles 664 867 1,238 1,519 2,614Food industry residues 1,451 1,348 1,254 2,367 2,399Vegetable oils 1,079 1,534 2,097 1,890 2,210Fish, crustaceans & molluscs 649 672 839 945 959Skins & leather 603 742 903 829 938Boilers, machines & mechanical equipment 578 519 736 765 890Meat & edible residues 473 628 848 781 765Iron & steel 329 312 389 523 611

ImportsBoilers, machines & mechanical equipment 3,236 4,256 3,861 4,576 5,834Vehicles 2,369 3,389 2,169 3,095 4,504Electrical machinery 2,577 3,190 2,632 2,976 4,110Organic chemicals 815 1,020 1,189 1,387 1,562Plastic materials 690 833 1,003 1,106 1,390Mineral oils & fuels 403 633 844 864 899Optical, photographic, measurement & medical equipment 461 632 550 642 871Paper & cardboard 453 527 672 727 871Iron & steel 323 414 414 424 645Miscellaneous chemicals 306 352 436 518 606Source: INDEC.



Reference table 28

Trade volume indices(1993=100)

1993 1994 1995 1996 1997

Exports 100.0 117.4 146.9 156.6 179.1

Imports 100.0 126.9 112.2 134.0 174.3Source: INDEC.

Reference table 29

Main trading partners($ m)

1993 1994 1995 1996 1997

Exports to:Brazil 2,814 3,655 5,484 6,615 8,064US 1,264 1,724 1,770 1,939 2,169Chile 592 999 1,475 1,766 1,912Netherlands 1,271 1,180 1,191 1,225 880China 163 225 286 607 871Uruguay 512 650 654 719 812Italy 505 654 736 721 729Iran 248 229 510 637 659Paraguay 358 499 631 584 620Japan 467 445 457 512 553Mercosur 3,684 4,804 6,770 7,918 9,496EU 3,646 3,891 4,465 4,562 3,985NAFTA 1,562 2,084 2,029 2,326 2,543Total exports 13,118 15,839 20,963 23,811 26,272a

Imports from:Brazil 3,570 4,286 4,175 5,309 6,913US 3,859 4,928 4,177 4,715 6,058Italy 980 1,431 1,259 1,503 1,747Germany 1,024 1,382 1,251 1,426 1,655France 739 1,072 1,040 1,180 1,374Spain 507 865 930 1,064 1,256Japan 669 620 711 725 1,149China 215 217 608 698 1,006UK 259 355 413 563 802Chile 706 831 514 558 687Mercosur 3,755 4,214 5,129 5,783 7,604EU 4,140 6,168 6,009 6,900 8,321NAFTA 4,184 5,344 4,819 5,562 7,155Total imports 16,784 21,590 20,122 23,762 30,449a

a Sum differs from that given in Table 29 owing to a discrepancy in the source.

Source: INDEC.



Reference table 30

Balance of payments, IMF estimates($ m)

1993 1994 1995 1996 1997

Goods: exports fob 13,117 15,839 20,964 23,811 25,223

Goods: imports fob –15,543 –20,077 –18,726 –22,189 –28,418

Trade balance –2,426 –4,238 2,238 1,622 –3,195

Services: credit 2,454 2,599 2,860 3,226 3,271

Services: debit –5,184 –5,540 –5,082 –5,721 –6,340

Income: credit 2,174 3,093 4,395 4,676 5,468

Income: debit –5,101 –6,352 –7,611 –7,924 –9,673

Current transfers: credit 599 542 541 429 450

Current transfers: debit –188 –222 –109 –95 –100

Current-account balance –7,672 –10,118 –2,768 –3,787 –10,119

Direct investment abroad 1 –125 –155 –205 –28

Direct investment in Argentina 3,261 3,107 4,783 5,090 6,326

Portfolio investment assets –2,037 –185 64 –808 –901

Portfolio investment liabilities 30,341 4,722 5,109 11,676 11,349

Other investment assets –695 378 –13,587 –9,005 –7,168

Other investment liabilities –21,044 1,383 4,360 285 3,679

Capital-account balance 9,827 9,280 574 7,033 13,257

Net errors & omissions 35 –16 12 –8 25

Overall balance 2,190 –854 –2,182 3,238 3,163

Financing (– indicates inflow)Movement of reserves –4,512 –541 49 –3,775 –3,082Use of IMF credit & loans 1,211 455 1,924 367 –38Exceptional financing 1,111 939 209 170 –43Source: IMF, International Financial Statistics.



Reference table 31

Balance of payments, national estimates($ m)

1993 1994 1995 1996 1997

Merchandise exports fob 13,269 16,023 21,162 24,043 26,273

Merchandise imports, fob –15,632 –20,162 –18,804 –22,282 28,560

Trade balance –2,363 –4,139 2,358 1,761 –2,287

Real services –2,793 –3,040 –2,342 –2,634 –3,299

Financial services –2,927 –3,258 –3,216 –3,248 –4,190 Profit & dividends –1,846 –2,122 –2,162 –1,922 –2,435 Interest paid –3,216 –4,209 –5,402 –5,913 –7,139 Interest received 2,135 3,073 4,348 4,587 5,384

Transfers 411 320 432 334 347

Current-account balance –7,672 –10,117 –2,768 –3,787 –9,429

Banking sector –1,527 1,893 4,360 –519 –1,766 Central Bank –2,818 307 1,929 849 –798 Other financial institutions 1,291 1,586 2,431 –1,368 –968

Non-financial public sector 7,121 4,097 5,945 8,731 7,328 National government 6,473 4,471 6,435 8,583 6,491 Local governments 889 189 374 612 1,231 Enterprises & others –241 –563 –864 –464 –394

Non-financial private sector 4,559 4,454 4,923 5,415 9,988

Other capital movementsa 1,999 234 –12,529 –6,058 –3,059

Capital-account balance 12,152 10,678 2,699 7,569 12,491

Change in international reserves 4,480 561 –69 3,782 3,062

a Includes errors and omissions.

Source: Banco Central de la República Argentina.



Reference table 32

External debt($ m unless otherwise indicated; debt stocks as at year-end)

1992 1993 1994 1995 1996

Total external debt 68,345 70,576 77,434 83,536 93,841 Long-term debta 49,855 58,403 66,052 67,235 75,348 Short-term debt 16,176 8,653 7,171 10,170 12,200 Use of IMF credit 2,314 3,520 4,211 6,131 6,293

Public & publicly guaranteed debt 47,611 52,034 55,832 55,970 62,392 Official creditors 13,166 16,834 18,830 21,004 19,919 Multilateral 5,037 7,112 7,748 9,414 9,891 Bilateral 8,130 9,722 11,082 11,590 10,028 Private creditors 34,445 35,200 37,002 34,966 42,473 Bonds 11,620 33,974 35,628 33,349 41,160 Commercial banks 21,618 804 916 1,207 1,050 Other private 1,207 422 459 410 264

Private non-guaranteed 2,244 6,369 10,220 11,265 12,956

Total debt service 5,003 6,556 6,693 9,692 14,021 Principal 2,178 3,255 2,582 4,334 8,117 Interest 2,826 3,301 4,110 5,358 5,904

Ratios (%)Total external debt/exports of goods & services 405.1 395.4 357.6 294.6 295.7Total external debt/GNP 30.4 27.7 27.8 30.1 32.3Debt serviceb 29.7 36.7 30.9 34.2 44.2

a Maturity over one year. b Total debt service as a proportion of exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 33

Foreign reserves($ m; end-period)

1993 1994 1995 1996 1997

Foreign exchange 13,339 13,764 13,749 17,705 22,153

SDRs 453 563 539 399 167

Total reserve assets excl gold 13,791 14,327 14,288 18,104 22,320

Golda 1,672 1,651 1,679 1,611 120

Total reserves 15,463 15,978 15,967 19,715 22,440

a National valuation.

Source: IMF, International Financial Statistics.



Reference table 34

Exchange rates1993 1994 1995 1996 1997

Nominal (end-period)Ps:$ 0.9985 0.9995 0.9995 1.0000 0,9995Ps: SDRs 1.3715 1.4591 1.4865 1.4372 1,3486

Real (annual averages; 1990=100)a

Ps:$ 56.2 54.5 54.6 55.8 55.8Ps:DM 60.2 60.5 67.4 64.7 56.2Ps:R 63.3 70.1 78.5 83.6 82.6

Effective real exchange rate index 60.9 62.5 67.0 67.5 65.2

a Deflated by consumer prices.

Sources: Carta Económica.; IMF, International Financial Statistics.

Editor: John BowlerAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023



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